Your 2019 Guide to Parent PLUS Loans
A Direct PLUS loan is a type of student loan produced by the US Department of Education. Direct PLUS loans can be made to parents of dependent students as well as graduate students. Although both types are officially referred to as Direct PLUS loans, when given to a parent borrower, they are commonly referred to as Parent PLUS loans. However, it is important to note that “Parent PLUS Loan” is not an official title.
PLUS loans are designed to complement other forms of student assistance. For example, if there is still a financial need after the scholarships or grants received by a student, and they have maximized their borrowing capacity with regard to the subsidized and unsubsidized direct loans, PLUS loans can help. to close the gap.
A Parent PLUS loan is the legal responsibility of the parent, not the student. The parent is responsible for repaying the loan as agreed, and responsibility cannot be transferred to the student.
PLUS Loans are paid directly to the school, where they are applied against any tuition, fees or other charges on the student’s account. If there is any money left over after all the tuition has been paid, any remaining funds will be distributed to you (the parent) or the student, depending on how you set up the loan when you apply.
Who can get a Parent PLUS Loan?
Obviously, to obtain a Parent PLUS Loan, you must be the parent of a college student (biological or adoptive) or be the spouse of the student’s parent. Grandparents are not eligible unless they have legally adopted the student.
You must also be a U.S. citizen, national, or permanent resident, and must be in general with any other federal loans and scholarships you may have.
While I wouldn’t exactly characterize the credit standards used when applying for Parent PLUS loans as difficult, it is important to realize that unlike direct student loans, Parent PLUS loans are credit-based.
One of the requirements is that the applicant cannot have an adverse credit history, which is specifically defined as:
- Have one or more debts with a combined balance greater than $ 2,085 that are 90 days or more past due or that have been placed in collection or written off within the previous two years.
- Or, have an adverse action such as a foreclosure, repossession, tax lien, or wage garnishment within the previous five years.
How much can I borrow?
The short answer is that the maximum amount you can borrow with a Parent PLUS Loan depends on where your child goes to school.
Each school determines an overall cost of attendance each year. The maximum PLUS loan you can get is determined by that amount minus any other financial assistance your child receives. And to be perfectly clear, the terms of both subsidized and unsubsidized direct loans are much better than those offered on PLUS loans, so it is generally a good idea for your student to maximize their own federal student loan borrowing capacity.
Here is an example of how it works. My alma mater, the University of South Carolina, estimates its 2018-2019 tuition cost for on-campus students at $ 29,880. This includes tuition, fees, accommodation, means, books, school supplies, transportation and other miscellaneous expenses for the fall and spring semesters.
Let’s say your student is in the second year of undergraduate studies at this school. We’ll say your student has $ 4,000 in various scholarships and grants, and as a second year dependent student they can borrow up to $ 6,500 in direct loans. Subtracting these other forms of assistance from the school’s tuition fees shows that the maximum PLUS loan a parent can get is $ 19,380 for the school year.
It’s important to consider that you may not need to borrow the most. For example, if you have money in savings that you can use, take that into account when applying. Keep in mind that anything you borrow will be subject to fees and interest, as I’ll discuss in the next section.
How much do Parent PLUS loans cost?
There are two main costs associated with Parent PLUS loans: the interest rate and the loan fee.
First of all, just like other types of federal student loansParent PLUS loans have fixed interest rates that are set for loans disbursed during each school year. Without going into too much detail about how it works, the interest rate is basically defined as the yield on 10-year Treasury bills plus a certain premium. For the 2018-2019 school year, the PLUS loan interest rate is set at 7.6%, and this applies to loans disbursed for the first time from July 1, 2018 and before July 1, 2019.
The other cost is the “loan fee,” which is similar to the origination fee charged by a mortgage or auto lender. The loan fees also change each year (although the period runs from October 1 to September 30).
For loans first disbursed between October 1, 2018 and September 30, 2019, the PLUS loan fee is 4.248%. This commission is deducted from each loan disbursement. For example, if you get a PLUS loan of $ 10,000 before September 30, 2019, only $ 9,575.20 will actually go to your child’s school.
How does the reimbursement work?
When you apply for a Parent PLUS Loan, you can request a deferral while your child is in school. In this case, you won’t have to start repaying your loan until they drop out of school, graduate, or reach part-time enrollment level.
However, it’s important to mention that you need to request a deferral if that’s what you want. Otherwise, you will be responsible for making the payments as soon as the loan is fully disbursed.
The borrowers of the Parent PLUS loan can choose from the standard (10 years) repayment plan, the graduated repayment plan (which starts with lower payments that gradually increase) or the extended repayment plan (up to 25 years). Generally speaking, Parent PLUS loans are not eligible for income-tested repayment plans, but the exception is if you consolidate the loans into a direct consolidation loan, they might be eligible for the income-based repayment plan. Income (ICR), which limits the monthly payment to a certain percentage of your discretionary income.
If you are having difficulty repaying a Parent PLUS loan, you may be able to request a postponement or forbearance to temporarily reduce or stop your loan payments.
Could the private sector alternatives be better?
Parent PLUS loans certainly have some advantages, such as the ability to defer repayment in difficult times, to choose from multiple repayment plans, and the ability to qualify with less than excellent credit.
Having said that, Parent PLUS loans are a bit expensive, especially in terms of loan fees. Set-up fees of more than 4% on any type of loan would generally be considered high. It may therefore be wise to explore the options available in the private sector.
There are several private student loan lenders that offer loans to parents of students, and many of them have much better terms than those offered by Parent PLUS Loans. For example, College Ave provides loans to parents with no origination fees, terms of up to 15 years, and relatively low APRs for borrowers with good credit. Wells Fargo offers a similar parent loan product and also offers an additional discount to parents who already have a relationship with the bank. The point is, while a Parent PLUS loan can certainly be meaningful to many borrowers, it’s a good idea to shop around.
How to apply for a Parent PLUS loan?
Parents can apply for a Direct PLUS loan online with the Direct PLUS Loan Application for Parents. The entire application process should take you around 20 minutes, and it’s important to note that the application must be completed in one session – so you can’t save your work and come back later.
On the Direct PLUS loan application, you can request a deferral of repayment while the student is still in school, as well as a six-month grace period after the student leaves school or falls into retirement. below the half-time registration. You can also specify whether you want excess loan proceeds paid to you or your student after tuition, fees, and other expenses have been paid to the school.
After applying, you will need to sign a Master Promissory Note (MPN), which is a document that basically states that you agree to the terms of the loan and repay the loan as agreed.