For parents, the excitement and pride that you feel as your son or daughter heads off to college is unfortunately, for a large percentage of us, a time of financial burden.
Private Student Loans for parents gives the student another avenue of help (the parents will help out) and for the older more experienced parent, it gives them the opportunity to offer a helping hand in there child s future by carrying some financial responsibility of education.
Of course, the parent needs to be in a good financial position before contemplating about assisting your child and taking on another loan or repayment.
What is promising is that Student loans for Parents are not just offered by the Federal government, but also some private financial companies are selling products ( loans ) specifically geared towards parents needing to take out a loan for there kids to assist with the education and tuition.
Parent PLUS or Private Student Loan – Weigh Your Options
Parents Plus loans aka Direct PLUS Loans are great to make up the shortfall which your child may receive from Student Aid, but there a few things that you need to be aware of.
- The U.S. Department of Education is your lender.
- A parent must not have an adverse credit history. They will perform a credit check and you may be denied in your loan application.
- The maximum PLUS loan amount you can receive is the cost of school attendance minus any other financial aid that you have or would receive.
Before you decide that a Parents PLUS loan in the best option to proceed make sure you have done due diligence in ensuring that your child has exhausted all the options in terms of student Aid available to them. Parents PLUS loans can help the student, but it;s you who is financially responsible for the servicing (making payments) for the loan
What About The Costs – Check Your Out of Pocket
The costs, hidden or otherwise differ quite substantially between the Parent PLUS and a Private Student Loan. The interest rate that is set by the Federal Government on a yearly basis is probably one of the highest interests rates of Federal loan
In 2019 the interest rate for Parent PLUS is 7.6 % This rate is a fixed rate for the duration of the loan agreement. Parents PLUS loans also incur an origination fee or establishment fee. For 2019 that’s equates to another 4.248% of the loan as costs to add on.
Private Student loans interest rates vary, but if you or the parent has a strong credit rating then often you can secure a loan well under that 7.6% offered by the Federal Direct PLUS loan. Many of the companies offering the private student loan for parents may not charge an origination or establishment fee either saving you some of that hard-earned dollar!
Loss of some Federal Benefits – There are a few
Yes, the Parents PLUS loan is a Federal Loan, but doesn’t have all the benefits and options that other Federal loans may have. Parent PLUS loans are not eligible for the following:
- Income-based repayment (IBR)
- Pay-as-you-earn repayment (PAYE)
- Revised pay-as-you-earn repayment (REPAYE)
- Income-contingent repayment (ICR), unless consolidated into a Direct Consolidation Loan
- Public Service Loan Forgiveness, unless consolidated into a Direct Consolidation Loan and repaid under the ICR plan.
- PLUS loans have a higher origination fee and interest rate when compared to a federal Stafford loan
When do Payments Begin?
Generally payments on the loan will start as soon as the loan is paid out. There are some exceptions to the rule. Your can request a deferment.
With Deferment, No Payments will be due while your he or she is enrolled at least half-time and for an additional six months after your child graduates from, leaves school, or drops below half-time enrollment.
Some schools require you to submit your request for a parent PLUS loan at StudentLoans.gov. During this application you will have the opportunity of asking for a deferment as part of the loan request process.
If no deferment is requested , then expect to start making payments after the loan is fully disbursed or paid out.
Be wary that interest will continue to accrue on your loan during periods when you are not making payments. Your have a couple of options in how you choose to pay the interest .
Either pay the interest itself or allow the interest to be capitalized .
Capitalization results in any interest that you accrued being added to your loan principal balance. As an Example you have a $1000 dollar loan and you accrue say $100 interest. When you capitalize the interest its added to the capital amount which equals $1100. Your interest payments will now be based on the amount of $1100.
What about Bad Credit – Can you still qualify for a Parents Plus?
A credit check will be performed during the application process for the Parents PLUS Loan. If you have an adverse credit history then in all likelihood you will not be ale to qualify outright for the loan.
Do not despair as you do have a few options with which you may still qualify for the loan:
- Your will need to obtain an endorser who does not have an adverse credit history. Who is this you ask? Well, an endorser is someone who agrees to repay the parent PLUS loan if you do not repay it. It is basically your backup.
- . Documenting to the satisfaction of the U.S. Department of Education that there are extenuating circumstances relating to your adverse credit history.
- Your also must complete credit counseling for parent PLUS loan borrowers on the StudentLoans.gov website.
In the event that you still do not qualify after making these appeals then you can revisit the Schools Financial Aid office and or contact the school’s financial aid office to request a higher loan limit on the Direct Subsidized Loan.
The Next Steps
If you have done all the ground work and find the best way forward is a Parents PLUS loan then you will need to submit the PLUS loan application on StudentLoans.gov as most schools request this method although some schools have different application processes.
Vitality important is that you child, prior to you application completed the Free Application for Federal Student Aid (FAFSA®) form.
Hope that helps
Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution