Parent PLUS Loan, what is it and does it make sense for you? Let’s look at this educational loan in more detail and explore the benefits it offers. The main concept of the Parent PLUS Loan is to borrow for our children’s college education. The Parent PLUS Loan offers both a fixed and a flexible interest rate and loan limits. Although this is available at large, it’s best to look at the Direct Loans for college education first as these offer a better interest rate and fees, thereby costing you less.
How Parent PLUS Works:
- How to Apply for a Parent PLUS Loan
You’ll need to visit the FAFSA (Free Application for Federal Student Aid) Federal Student Aid site. This step is a must as the Federal Student Aid is borrowing from the Parent PLUS Loan program. There are two ways to request the Parent PLUS Loan:
a. You can go directly to Official Student Loans Gov site
b. Speak to the college’ financial aid office. Applying online is easier but if you prefer to go in person, feel free to have a chat with the staff on campus.
2. Basic Guidelines for the Parent PLUS Loan
a. The parent should request the loan, not the student/child
b. Use the same ID that you used for signing the FAFSA above
c. Whichever parent signs the Master Promissory Note (MPN) should be the parent that requests the loan
3. Eligibility
The crucial factor to consider here is that, this loan is only available for dependent children who are enrolled in an undergraduate program. If you have a child that is not a dependent, you do not quality. If you are divorced, you can still apply for the loan as long as the dependent child is enrolled and you sign the MPN as explained above.
4. Credit Terms
To be eligible for the parent loan, your credit score and your debt to income ratio does not matter therefore, is not taken into account. However, if you have a questionable credit history, you may want to straighten that up before applying. We’ll not get into too much detail here but keep in mind the usual defaults, bankruptcy discharges, foreclosures and other write-offs from the past five years.
5. Other Requirements
There’s a complete list of requirements on the main site as per above but the main ones are:
a. Students must be enrolled at least half of their time
b. Must be US citizen, PR or eligible noncitizen
c. No default of any federal student loan program
d. This can be used for educational purposes only
6. Interset Rates
As of this academic year (2018-2019), the interest rate of a Parent PLUS Loan is 7.6%. This is a fixed interest rate, so it does not change. However, every July the interest rate is changed pending market conditions.
7. Amount That You Can Borrow
The main idea here is that you can borrow the amount that is reflected in the cost of attending the college per year less any other loans that you may have. This includes but not limited to: tuition, room and board, books, supplies, etc.
8. Grace Period and Repayment
You can have a six month grace period after your child graduates however, note the interest may accrue during this period. The typical repayment period for a Parent Plus Loan is ten years. Having said that, you may qualify for a longer period if an amount of $30,000 plus has been taken out.
Recommendation
First, establish your financial needs as parents and come up with a clear figure on how much you need for your child’s college education. Compare loans in the market place. This is critical as you may be able to get a different loan, sometime with better terms such as lower interest rates and better repayment plans. Consider a Direct Loan for example as mentioned above.
Bottom line, the Parent PLUS Loan still offers great value for your kids education. If you decide to go ahead with it, just follow the steps outlined here, firs being the FAFSA filing. We believe that this educational loan still provides enough value and flexibility and is worth considering.
Do you agree with our view? What are some other student loans that are worth considering when taking your children’s college education into account? What works for you as a parent?
