Student Loans

What is Parent PLUS Loan?

Most parents are more than happy to help their kids with college expenses. But nowadays, it’s become tougher for parents to write big semester checks. There is no denying the high cost of a four-year degree or grad school. For graduating high school seniors and adults, going to college can create better job opportunities and result in higher pay. And if you’re like most parents, you may prefer that your children get a degree. Fortunately, there are ways to make college work if you can’t pay tuition on your own. Several federal programs exist to help with college tuition, such as a Stafford Loan and a Perkins Loan. With both types of loans, students apply for their own financing. There is, however, a loan option for parents of college-bound students. The Parent PLUS Loan is a federal student loan program for parents who need help paying their kid’s education expenses. Funds can be used to cover the complete costs of college, or fill the gap after a student receives a grant, a scholarship and other aid.

Here are five things to know about the Parent PLUS Loan..

1. Unlike other federal loan programs, parents are the primary borrower with a Parent Loan PLUS. In the case of other federal loans, students can apply for financing despite a bad credit history or no credit history. The credit requirements for a PLUS Loan aren’t as lenient. Parents who apply for financing undergo a credit check, and if their credit report reveals major issues within the past five years, these issues can affect their approval odds.

2. There are limits to how much parents can borrow with a PLUS Loan. As a general rule, parents can borrow the total cost of their kid’s education expenses minus any other assistance. If a student’s semester expenses total $5,000 and he receives $4,000 from other financial aid, his parents can only borrow up to $1,000 for the semester.

3. Although credit history is a factor when applying for a Parent Loan PLUS, a parent or student’s income does not affect eligibility. Because this is not a need-based loan, low-income or financial hardship is not a requirement for approval. Any parent who needs financial assistance with their child’s education expenses can apply.

4. Unfortunately, PLUS Loans cost slightly more than other types of federal aid. Students who apply for a Stafford Loan pay an interest rate between 3.40% and 6.80%, depending on whether the loan is subsidized or unsubsidized. A Perkins Loan – another type of federal aid – has a fixed rate of 5%. To reduce the interest rate on a PLUS Loan by 0.25%, parents can setup automated monthly payments.

5. Repayment is the least favorite aspect of federal student loan programs. But while students don’t have to repay their debt until after graduation, the Parent Loan PLUS works differently. Parents aren’t given a deferment or grace period. The government disburses funds directly to schools, and repayment begins immediate after disbursement. This arrangement works for some parents, as they’re able to pay off their kid’s education before they graduate.