Are Federal PLUS Parent Loans Right For You?

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Are Federal PLUS Parent Loans Right For You?
July 28th, 2009 by Matthew C. Keegan | Filed under Student Loans.

Over the next few weeks, families will learn the exact amount of money owed to their student’s college for the upcoming academic year excluding certain expenses such as textbooks. A number of students will have the full cost of their education covered by scholarships, grants, 529 plan monies or other savings options while some students will have to come up with perhaps as much as tens of thousands of dollars to pay for their education.

Loans For College
Student loans, including federal and private, are options worth exploring in order to cover college costs. But for some families, saddling their offspring with debt is what they don’t want to do, preferring to have the parents take on the debt themselves. After all, if you’re getting started in a new career, excessive debt can weigh you down.

Home equity loans, equity lines of credit and federal PLUS parent loans are some options available to borrowers, the latter which is the subject of this article. So-called “Parent PLUS” loans are not student loans. Instead, Parent PLUS loans are made between the parent(s) and the lender. Any student obligation to repay this type of loan is a family matter; borrowers who qualify for these types of loans are obligated to pay the loan back to the lender.

Dependent Children Only
Parent PLUS loans are open to parents of financially dependent children who are pursuing an undergraduate education. If your adult child is living independently of you, then you won’t be able to qualify for a Parent PLUS loan. This is a critical point worth noting if your son or daughter cannot be declared as a dependent on your federal tax return.

Parent PLUS loans are open to US citizens or nationals, to US permanent residents and in some cases to eligible non-citizens. Your lender can help you determine your eligibility before you apply. And, of course, like any type of consumer loan you must be deemed creditworthy in order to secure financing.

Federal Fees Apply
Borrowers may take out a loan for the full cost of their child’s education minus other aid money received. The federal government will charge an origination fee of 3% with a default fee of up to 1% charged. Repayment begins within sixty days of loan disbursement but lenders will often allow for the postponement of repayment to a later date, as late as six months after completing college; students must be enrolled at least half time during the loan period.

The interest rate for parent PLUS loans is currently fixed at 8.5%. This rate is higher than what some borrowers can get with a home equity loan, therefore it is important for you to explore your options if choosing this type of loan. However, unlike a loan against your home where monthly payments are due almost immediately, you can defer repayment on a federal parent PLUS loan for several years.

Whatever type of loan you are considering, please make certain that you understand what is required of you as a borrower. A federal parent PLUS loan isn’t for everyone, but it can be the right choice for some families.

Adv. — Are you considering a federal parent PLUS loan? If so, visit your Sallie Mae lender for more information or call them directly at 866-530-9523.