It’s always bittersweet when your oldest or only child heads off to college. Of course, you’re happy that they’re striking off on their own and growing into an adult, but there’s still that melancholy from knowing that your home will never be the same.
All that, and you have to pay for it, too. With housing, tuition, food and more, the costs can add up. Student loans from the government help, but sometimes they aren’t enough. That’s why there are Parent PLUS loans. If you’ve never heard of Parent PLUS loans, don’t worry. Here’s a quick guide to bring you up to speed.
Intro to Parent PLUS Loans
While student loans are taken out by the student, Parent PLUS loans are taken out by the parents. It is a federally-run program to help families that could not afford to pay for school otherwise. As opposed to a co-signed loan, which many student loans are, a Parent PLUS loan is the sole responsibility of the parent. It is in their name and it will go on their credit.
For a parent PLUS loan, first of all you must either be a biological parent or an adoptive parent. Legal guardians and grandparents cannot take out a loan, no matter what their responsibilities are for the student. There are credit requirements that the parent must meet. If they have too much debt or delinquencies on their credit history, they may be denied or get a lower amount than what they applied for. However, if one parent has bad credit and the other has good, the one with the good credit history can apply. Also, the student must be enrolled in a college, and they must be a U.S. citizen.
Applying for a Parent PLUS loan involves submitting a federal student aid application. Once that is complete, you will have to submit a Direct PLUS loan application on the Federal Student Aid website. Your credit history and other factors will determine your loan amount. However, there is a fixed interest rate that is currently set at 7.54%. If you were to be approved for the coming school year, your rate would not change for the life of the loan. You can use a Parent PLUS loan calculator to get a sense of how much you will pay on a monthly basis and for the life of the loan.
Benefits of a Parent PLUS Loan
The main benefit is that your child can get an education. Federal Direct Loans have a limit, and Parent PLUS loans help to go beyond that limit to help pay for school. The fixed interest rate is also very important for many people. For one, it means that you won’t pay more interest than you expect to. Two, your monthly payments will stay the same. If you are on a budget or a fixed income, this can be very helpful.
It’s also nice to be able to pick from 3 different repayment options. Keep in mind that you can’t change your option once you’ve chosen. You can choose a standard repayment, which is 10 years at a fixed monthly payment. A graduated repayment plan is also 10 years, but the payments start off low and gradually get bigger over time. Then there’s the extended repayment plan, which has smaller payments but is for 25 years.
Of course, there are some drawbacks that you will need to consider before going ahead with your application. For one, there is a fee to take out a Parent PLUS loan. It currently sits at 4.228% of the loan amounts. If the total loan is $30,000, then you will have to pay $1268 up front. You will also have to decide if you want your credit to be under scrutiny. If you have bad credit, then you may be denied. However, you can get a co-signer to help get approval for the loan if need be.
You will also have to start paying back the loan right away. This is different from student loans, which have the option of starting repayment upon graduation. However, because the parents aren’t the ones in school, a Parent PLUS loan requires monthly payments right away. However, you can apply for a deferment until the child has graduated, but you would have to meet eligibility requirements.
A Parent PLUS loan is a loan taken out in the parent’s name to pay for school. It is one of many options, and it can ease some of the pressure on the student to repay student loans after college. You will have to analyze all the data to make a choice that is right for you. In the end, you may find that a Parent PLUS loan is just what you and your child need.