Parent Plus Loan

Parent Plus Loan

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When families fill out the FAFSA, one of the options offered for funding are Parent PLUS Loans. These loans are meant to supplement school, state, and other federal financial aid offered. Filling out the FAFSA is the first step in determining eligibility for a Parent PLUS Loan. A credit assessment is performed to determine any late payments and recent defaults.

The eligibility requirements for a Parent PLUS loan are fairly simple. You must be the biological or adoptive parent of a dependent undergraduate student enrolled at least half-time. You generally must meet minimal credit standards, and the student must meet general eligibility requirements for financial aid.

If your credit needs improvement, you may still be able to get a Parent PLUS loan by providing documentation and getting approved because of extenuating circumstances. You can also get approved by getting a friend or family member with better credit to be an endorser.

If you are approved because of extenuating circumstances or because of an endorser, expect to complete PLUS loan credit counseling. It usually takes 20 to 30 minutes total and must be completed in one sitting.

Parent PLUS loan interest rates may be a shock to families who are used to paying rates for undergraduate federal student loans. While undergraduate loans to students are currently issued at a rate of roughly 4.5%, rates for Parent PLUS loans are roughly 7.1%.

Now think about how much more you can borrow with a Parent PLUS Loans versus a traditional undergraduate student loan. While federal student loans are generally capped for dependent students at $31,000 for an entire undergraduate degree, Parent PLUS loans are capped by the total cost of attendance minus other sources of financial aid.

No. Subsidized student loans are education loans where the Department of Education pays the interest on the loan while the student is in school and certain economic and other circumstances. This loan type is only available to students who meet the financial need criteria.

Parent PLUS loans are approved on an annual basis, but they are distributed based on school terms such as quarters or semesters. Without asking for a deferment, a payment break for in-school status and other economic circumstances, repayment begins after the final disbursement for that academic year.

Parents can request deferment for each academic year while their student is enrolled at least half time. Upon graduation or separation from school, parents get the same six-month grace period as a student borrower does before payments start. In other words, if a student graduates in May, the first payment on the Parent PLUS loan would not be due until November.

The income-driven repayment plan available to parents is called the income-contingent plan. The payment can be higher than other plans available to students BUT it still allows you to make lower monthly payments if you qualify and you may also be eligible for the Public Service Loan Forgiveness program after 10 years of on-time payments.

It is possible to get some Parent PLUS loan forgiven via the Public Service Loan Forgiveness (PSLF) program when choosing the income-contingent plan, provided the plan is still available when you finish borrowing.

In addition to income-contingent and deferment options, parents can qualify for temporary breaks from payments called forbearance in case of economic difficulty for variety of reasons. Approval is generally up to the servicer of your loan or loans.

There are also options to consolidate your PLUS loan with a private company or bank. Only consider offers where the interest rate is lower, you can afford the payment, and if you have zero chance of qualifying for PSLF.

footnote 1. Sallie Mae loans cover enrollment periods of up to 12 months. Students must apply for a new loan each school year. This approval percentage is based on students who were approved for a Sallie Mae undergraduate loan with a cosigner in the 2019/20 school year and were approved for another Sallie Mae undergraduate loan when they returned with the same or new cosigner in 2020/21. It does not include the denied applications of students who were ultimately approved in 2020/21.

Parent PLUS loans can be a good alternative to private student loans because they offer more flexible repayment options. But Parent PLUS loans can be costlier than other options, and consequences are harsh for default, including the potential for wage and Social Security garnishment. Here's an overview of this student loan option.

The Direct PLUS loan is a federal student loan program. One type of Direct PLUS loan is the Parent PLUS loan, made to the parent or legal guardian of a dependent undergraduate student to help cover the cost of the student's education.

With Parent PLUS loans, the parent can borrow up to the cost of the child's attendance each year, minus any financial assistance that has been awarded, with no limit on the amount borrowed. This is true regardless of the parent's income. Although an unlimited loan source may seem appealing, there is real potential for the parent to get into heavy debt.

Parent PLUS loans have a fixed interest rate, and the borrower pays an origination fee for each loan. Parent PLUS loans are not subsidized, so interest begins to accrue on the outstanding loan balance as soon as funds are disbursed and continues to accrue even if the loan is in deferment.

This is not a loan to the student. As Richard D. Gaudreau, a student loan attorney in New Hampshire, points out, \"It is not a co-signed loan.\" These credit-based loans are made to the parent alone and are different from private student loans, which a parent might co-sign.

Both loans have advantages and drawbacks. Parent PLUS loans have more options for repayment plans and forgiveness, but interest rates tend to be higher and the federal government has greater power to collect than private lenders. Private student loans could help you save on interest, but you're more limited on forgiveness and repayment programs.

Perhaps the most important distinction between Parent PLUS loans and private student loans is that federal student loan borrowers can take advantage of income-driven repayment plans, and private student loan borrowers cannot.

Another important difference lies in the lender's collection options. \"Federal loans can be harder to get rid of during bankruptcy,\" says Gaudreau. In default, \"the government can garnish your wages. They can take up to 50% of your Social Security. They can withhold your tax refund. They have more power to collect.\"

Parent PLUS loans are forgiven if either the student or the parent borrower dies. Private loans are still collectible in the event of death, although some lenders have forgiveness policies for death or disability.

The main advantage private student loans offer is that they tend to come at lower interest rates than their federal counterparts. A borrower might see a difference of 2% or more, depending on his or her credit standing. Over the course of a 10-year or longer repayment period, the lower interest rate can add up to significant savings.

With parent loans, you are taking on debt for someone else's benefit, likely while also trying to save for retirement and limit debt. Many financial experts discourage jeopardizing your financial stability in retirement to help a family member. A private student loan taken out by the student places payment responsibility on the person benefiting from it.

Kat Tretina, freelance finance writer and a former content writer at Student Loan Hero, agrees. The Parent PLUS loan \"can amount to a lot of debt that you have to repay and potentially risk your own retirement to do so.\"

Once the loan money is disbursed, parents are expected to begin payment. However, you can request deferral of loan payments until the student graduates, drops below half-time enrollment or leaves school.

For a Parent PLUS loan borrower at risk of falling behind on payments, the ICR plan can potentially lower the required monthly payment to an affordable level. Depending on your income, \"you can get a payment as low as $0,\" says Gaudreau.

Parent PLUS loans are eligible for the Public Service Loan Forgiveness program, in which the remaining balance is forgiven after the borrower has made 120 qualifying monthly payments and the borrower is employed full-time by a qualifying employer.

\"With such a high interest rate, the balance on the loan can grow over time, causing parents to have to repay thousands more than they originally borrowed,\" Tretina says. \"So much debt can cause them to delay saving for retirement to afford the loan payments.\"

A Parent PLUS loan interest rate might be higher than the rate on other possible sources of financing. For example, parents who are homeowners may be able to take a cash-out refinance mortgage at a lower rate.

It's possible to get a Parent PLUS loan you can't afford. The Parent PLUS loan application is based on the borrower's credit history; no loan officer will look at your income or other debt, or otherwise evaluate whether you can afford to make the payments. It is your responsibility to make sure you aren't borrowing more than you can afford to pay back. Although the ICR plan is available on consolidated direct loans, keep in mind that you'll need to budget for 25 years of payments.

\"Unless you can easily afford payments and/or have a plan to pay ahead of schedule, and you already have significant savings for retirement, you may not be a good candidate for a Parent PLUS loan,\" says Tretina. \"Especially because with the Parent PLUS loan, you could be risking your Social Security.\"

A parent or legal guardian of a dependent undergraduate student can apply for a Parent PLUS loan. First, you have to fill out the Free Application for Federal Student Aid, or FAFSA, for the academic year when you want to borrow. You can then apply for a PLUS loan. Parent PLUS loan eligibility requires that you:

You can get a Parent PLU