If you’re a parent with a child getting ready to head to college, and you hadn’t prepared for the college expenses, you’re not alone.
Parent PLUS Loans is one way that a parent can help their child fund their education without the financial burden lying on the child. A Parent PLUS Loan is a federal Direct PLUS Loan that lets parents of dependent undergraduate students borrow money to cover education expenses. However, when it comes to Parent Plus Loans it is important that as a borrower you understand that they’re not nearly as beneficial when compared to other federal student loans as they lack many of the great perks that come with federal student loans.
Let’s break it down by the pros and cons of Parent Plus Loans, so you can decide for yourself if a Parent Plus Loan is still the right option for you.
The Pros:
1. Parent Plus Loans are made directly to the parent, which means that the student is not liable for the repayment of the loan. It will not affect the student’s credit and future borrowing needs, i.e. in case they want to purchase a home or a vehicle in the future.
2. Parent Plus Loans can be eligible for the Income Contingent Repayment (ICR) Plan and they can also be eligible for the Public Service Loan Forgiveness (PSLF) program. Which means that they can be forgiven after 25 years of ICR payments or as little as 10 years for those employed in public service. However, you must consolidate them into federal direct consolidated loans before you can enroll in said programs.
3. Parent Plus Loans have much higher borrowing limits. (This can be a pro or con depending on how responsible you are at borrowing money.) These loans are most often used to cover the remainder of the college expenses only after scholarships and grants or even other federal loans have been exhausted. Rule of thumb with student loans….ONLY BORROW WHAT YOU NEED.
The Cons:
1. Parent Plus Loans have higher interest rates compared to any of the other federal student loans. This means that your monthly payments will be higher and the amount you pay back will also be higher.
2. Although Parent Plus Loans can become eligible for the Income Contingent Repayment (ICR) Plan, it’s not the best income-driven plan available. In fact, the ICR plan requires 20% of the borrower’s discretionary income, while the rest of the income driven repayment plans require as little as 10% of the borrower’s discretionary income. This alone can make a significant difference on the monthly payment.
3. For Parent Plus Loans to qualify for the Public Service Loan Forgiveness program or the ICR plan, one must first consolidate the Parent Plus Loan into a Federal Direct loan. Seems simple enough, right? It depends. If you have your own federal student loans from when you attended college and now you have Parent Plus loans, you may make a mistake during the consolidation process resulting in restrictions being applied to the new larger loan. Basically, the plans/programs that had been available for your own federal student loans would no longer be available, because the government would treat your consolidated loan with the limitations of the Parent Plus Loan.
4. A credit check will be conducted on all Direct PLUS Loan applicants, which means you must not have an adverse credit history. If, however, you do have an adverse credit history, you may still qualify for a Direct PLUS Loan, but you will need to take additional steps, as provided by the Department of Education.
Learn More About Parent PLUS Loans
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