If you’ve started exploring financing options for your student’s college education, you’ve probably wondered, “What is a Parents PLUS Loan?” at some point. You may also be curious if you need to borrow more money to supplement your child’s student loan, including state and federal grants already received. Rest assured these are common questions!
Stephen Fahey, director of student financial assistance at Azusa Pacific University, says many parents have asked him specifically about Parent PLUS loans in recent years. While he agrees that there is a clear financial incentive to apply for this type of loan, he says there is a more meaningful reason parents should be considering it.
“The maximum loan amount for student direct loans hasn’t changed in many years, but the cost of providing education continues to rise each year, so federal funding hasn’t kept pace with the cost of education,” Fahey explains. “The federal government invests in your child by giving a certain amount of money in the form of grants and soft loans, and then you have to decide how much to invest in your child’s future as well.”
The benefits of Parent PLUS loans
According to the US Department of Educationany parent who fills this out Free application for federal study grants (FAFSA) for their child—who intends to be at least halfway through college and make satisfactory academic progress—can also apply for a Parent PLUS loan. These loans are available to all eligible dependent students, including those pursuing college and professional degrees, up to the cost of their attendance (after deducting any other scholarship or loan received by the student).
According to Fahey, the main advantage of a Parents PLUS loan is that it is very easy to apply for; The only admission criterion is your good credit rating. This means you don’t have to worry about all the income and application requirements of a typical private bank loan.
Another advantage of this type of loan is the amount of interest that the borrower has to pay back. So what does a Eltern-PLUS loan interest rate look like? Fahey explains that this depends on interest rates when you apply, but once you’re approved, the interest rate is fixed for the life of the loan. It’s important to note that you’ll need to reapply for this loan every year if you need it, so interest rates may vary each year – but once they’re locked in, they won’t fluctuate.
Considerations to be aware of
Parent PLUS loans are “unsubsidized” because the government does not absorb any of the interest charged during the life of the loan, meaning the payback period begins earlier. This is in contrast to the other “subsidized” student loans your child may receive – where the government pays the interest while the student is still in college.
“I always advise parents to review all of their credit options and assess their credit needs,” says Fahey. “If you have good credit and a good income, you might get a better interest rate and tenor with a personal loan.”
To explore your options, you can contact banking institutions with which you already have a relationship and ask your child’s school for a list of financial institutions that offer private educational loans. If you opt for a parental loan PLUS, you can do so directly via the US Department of Education website as soon as you’re ready
Determine how much to borrow
Fahey encourages all parents to meet with someone at their student’s institution’s financial aid office — either by phone or in person — to find out exactly how much they can borrow. This can help you start on the right foot.
“I’ve seen people borrow too much and then get a refund from the facility, which means a parent borrowed money they didn’t need and paid interest on it,” notes Fahey. Once your child has decided on school and college, the payment option is a great opportunity for you to consider together how best to invest in their future.
Is your child interested in the APU? Would you like to find out more about financing options? We’ll cover you. Take some time to explore the different types of loans you (and your student) can apply for.
Posted: September 25, 2018