Direct Plus Loans best known as Parent PLUS loans are federal loans that are mainly made available to dependent parents or guardians of undergraduate students to help pay for college or career school.
The loans are handled by the US Department of Education loans and are made available only for eligible parents through schools participating in the Direct Loan Program.
Parent Plus loans could serve as an alternative hence it proves to work better than the private student loan due to its flexible repayment methods. However, they also have some consequences but we get to know that better as we dig further.
Understand What Is a Parent PLUS Loan?
This is a Federal Student Loan Program that grants loans to parents or legal guardians of undergraduate students that are dependent to facilitate the cost of their education through Parent Plus loans.
Regardless of their income status, parents or guardian through Parent Plus loans can borrow up to the cost of the child’s attendance each year.
This loan if obtained is aside from any financial support the students have if any do exist, there is no limitation to the amount borrowed. Although an unlimited loan source may seem attractive, there is real potential for the parent to get into heavy debt.
Parent PLUS loans exclusively are made to parents and not to grandparents on behalf of a student grandchild except the grandparent is recognized as the student’s legal guardian.
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How Does Parent PLUS Loans Work?
Parent PLUS loans are made available only to parents or guardians while they pay a fee at the beginning of the borrowed loan, interest rates to the loans are fixed.
Hence Parent PLUS loans are not subsidized, interest starts to accrue on the outstanding loan balance once funds are disbursed and that continues to increase even if the loan is rescheduled.
Parent PLUS Loan or a Private Loan?
Both loans have the good and the bad side of them. Though, Parent PLUS loans have more alternatives that prove to be lenient such as repayment plans and forgiveness, while the interest rates remain high with the federal government having a higher stake in decision making more than private lenders.
On the part of private student loans, this could help you save on interest, but have a restriction on forgiveness and repayment programs.
One key factor that differentiates Parent PLUS loans and private student loans is that federal student loan borrowers can enjoy the benefit of income-driven repayment plans, whereas private student loan borrowers cannot.
The Parent PLUS Loan Application and Approval Process
One of the preconditions of accessing a Direct PLUS Loan is, firstly you must complete a Direct PLUS Loan Master Promissory Note (Direct PLUS Loan MPN), this explains all of the terms and conditions of Direct PLUS Loans and constitutes your legally binding agreement to repay all Direct PLUS Loans that you receive under the Direct PLUS Loan MPN.
You will have an opportunity to complete the Direct PLUS Loan MPN after you complete the Direct PLUS Loan Application.
Being a parent or legal guardian of a dependent undergraduate student, you are eligible to apply for a Parent PLUS loan.
Firstly, 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. Find the requirement for Parent PLUS loan eligibility:
- As a parent of a dependent undergraduate student, do you enrolled at least half-time at an eligible school
- Are you with a bad credit history, or obtain an endorser or have been found in mitigating situations
- Meet the general eligibility requirements for Federal Student Aid, along with your child
In your bad credit state, yet you can be able to access a Parent PLUS loan only if you obtain an endorser who agrees to repay the loan if you failed to do so.
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Another method of Applying for Plus Loan for Parents
Use a Direct Plus Loan Application and apply for a Direct Plus Loan as a parent to help pay for your student’s school expenses.
You can also authorize the school to use funds to satisfy other educationally-related charges, request a deferment, or change the loan amount specified in a previously submitted PLUS Loan application.
The information that you provide will be sent to the school that you select.
The school you select will use the information collected to determine your eligibility for a Direct PLUS Loan as a parent and process your application.
Can I Afford a Parent PLUS Loan?
Certainly yes, Parent PLUS loan application is determined and judged based on the borrower’s credit history, unlike other lenders who look at your income or other debt to evaluate your suitability.
You are only advised to borrow within your reach known fully well that there is a payback time. Note that the ICR plan is in place to checkmate activities of direct loans, that is to say, need a budget for 25 years of payments.
Parent PLUS loan are recommended for people who may only have little resources to pay for a child’s education out of pocket but expects to maintain a steady income.
This type of parent or guardian should at least have 25 years to retire, or who is the beneficiary of a trust or other reliable, long-term source of income.
This then implies that except the person has a plan to pay ahead of schedule, or already has substantial savings for retirement, else Parent PLUS loan is not suitable for you. This is to avoid risking your social security.
Is a Parent PLUS Loan Right for Me?
Before you decide to apply for Parent PLUS loans, make a comparative survey using the pros and cons as parameters in deciding which of the loan that suits your purpose best.
While you apply for a Parent PLUS loan, why not consider other ways to finance your child’s education, such as scholarships, grants, and federal and private student loans.
When you help your children to apply for loans in their names, they stand a chance to learn and further become prudent in spending and management of resources within their reach while also helping you to save more and also protect your retirement benefits.
Note that, interest rates on student loans from the federal government are moderate than on parents which proves the difference.
How much can I Borrow?
The school the child attends determines how much to be borrowed. This means the highest PLUS loan amount to be borrowed is the cost of attendance at the school your child will attend minus any other financial assistance your child receives.
Do I have to make Payments on my Loan while my Child is still in School?
In most cases, it depends on you, if you request a deferment, you will not need to make payments while your child is enrolled at least half-time and for an additional six months after your child graduates, leaves school, or drops below half-time enrollment.
But if you are requested by the school your child attends to submit, then forward same to StudentAid.gov. Now you stand a chance to request deferment as part of the loan request process. But still, you can contact your loan servicer to request a deferment.
Can my Loan ever be Forgiven (canceled) or Discharged?
This type of loan can be forgiven, discharged, canceled, or repaid depending on the prevailing circumstances.
Applicants willing to secure Public Service Loan Forgiveness operates on a platform of income-driven repayment plans. This means, you must, first of all, consolidate your loan into a Direct Consolidation Loan.
Gaudreau opined that Federal loans can be harder to get rid of during bankruptcy. This means in any default, the government can use your wages in repaying, take up to 50% of your social security and also withhold your tax refund.
The authority exercised by federal loans does not apply to a private student loan lender. Though, “There is a statute of limitations on collection for private loans, but not on federal loans,” says Gaudreau.
Parent PLUS loans are forgiven if either the student or the parent of the student dies while for a private loan even in an event of death, this must be recovered, 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.
When Does Parent PLUS Loan Repayment Start?
Repayment commences as soon as the Parent PLUS loan is disbursed. Though, you can seek a deferment on your loan payment pending upon graduation of the student.