Part Two: If parents are denied a Parent PLUS loan, what are their options?
Last week, we outlined the basics of the Federal Parent PLUS loan, a great option for many families, but an option that might not be available to all. If you’ve been denied a PLUS loan, you first have the right to appeal the decision by documenting extenuating circumstances (Tweet this Tip). For more information, see https://studentloans.gov/myDirectLoan/whatYouNeed.action?page=credit.
The student’s other parent or stepparent also can apply for the Parent PLUS Loan which will trigger another credit check for the new borrower to determine his or her eligibility. Finally, the original borrower also has the option to utilize an endorser to cosign the loan. The endorser must pass the credit check, and he or she will be responsible for repaying the loan if the borrower fails to make payments.
Part One: What is a Federal Parent PLUS Loan, and how do I get one?
Now that you’ve deposited at a college, it is time to figure out how you are going to pay the bill. One of the many ways parents can help their students pay their college costs is with a Federal Parent PLUS Loan. As the name suggests, this is a loan where the parents are the borrowers. The PLUS Loan is a federal loan that provides borrowers with protections not often found in the private loan market, including several attractive repayment options, fixed interest rates with predictable payments, and deferment and forbearance options during short term hardships.
In recent years, the Parent PLUS loan has offered a fixed interest rate. It is currently based on the Ten-year Treasury Note plus 4.6 percent with a cap of 10.5 percent. The current interest rate is 6.41 percent and will be reset on July 1st for the 2014-2015 school year. Borrowers should borrow for the entire academic year, keeping in mind that they will need to reapply each year. A credit review is done each year because borrowers are not automatically approved for the entire cost of the education.
Yesterday brought breaking news for student loan borrowers: we now know what Federal Direct Loan interest rates will be for the 2014/15 school year! Though rates are officially set for the upcoming academic year based upon the 10-year Treasury Note rate in effect on June 1st, the U.S. Treasury Department just held its last scheduled Treasury Note auction prior to that June 1st deadline, giving us a sneak preview of next year’s rates. For loans disbursed between July 1, 2014 and June 30, 2015, interest rates will be as follows:
Unfortunately for borrowers, these rates represent a 0.8% increase over last year’s rates. See last summer’s blog post regarding how federal education loan interest rates are set, and note that these new rates only apply to loans disbursed during the 2014/15 academic year.
Is Student Loan Reform Good News for Federal Loan Borrowers?
If Senator Elizabeth Warren of Massachusetts gets her way, there will be good news on the horizon for federal student loan borrowers. Warren recently announced on her blog that she will be introducing new legislation to allow graduates with high interest rate student loans to refinance those loans at rates “at least as low as those now being offered to new borrowers in the federal student loan program.” Warren points out that “when interest rates are low, homeowners can refinance their mortgages. Big corporations can swap more expensive debt for cheaper debt. Even state and local governments have refinanced their debts.” But student loan borrowers cannot currently refinance their debt at prevailing interest rates through any existing federal program. The current federal student loan consolidation program allows borrowers only to lock in a weighted average of all of their existing interest rates, not necessarily get themselves a lower interest rate.
Reader Beware: Clearing up Student College Loans for Parents
In our developing “Reader Beware” series, College Coach finance experts seek to correct inaccurate college finance information shared in the popular press. The goal is to help families make well-informed college finance decisions rather than relying on assumptions, half-truths, and misinformation picked up from inexpert sources. In this second installment of the series, we take a look at a recent article in the St. Louis Post-Dispatch entitled College Loans Can Trap Unwary Parents.
Education loan relief is on the way for today’s college students and their parents, at least in the short-term. Congress just passed, and President Obama is expected to sign into law, a compromise bill that keeps student loan interest rates low for today’s crop of college students, while minimizing the cost to the federal government in the long run. This is great news for students on campus this fall, who have been anticipating borrowing at twice the interest rate of last year’s loans.
When prior student loan regulation expired on July 1 and Congress failed to act, the interest rate on the Subsidized Direct Loan doubled from a fixed 3.4% to 6.8% for all future borrowers.
If you, like many others, are in need of additional financing for college after taking advantage of your child’s federal student loan eligibility, a private student loan may meet your needs. Before you choose a private student loan, consider the following:
1. Are you or the student able to make any payments while the student is in school?
Some lenders require payments of principal and interest, others interest-only payments, while the student is enrolled in college. If you or the student can make these payments, this is a great way to keep debt down. If you are not financially able to make payments while the student is enrolled, you should instead look for a loan that can be fully deferred—that is, one that does not require any payments while the student is enrolled in school.
As spring turns to summer, the minds of many new college graduates turn from elation over graduation to anxiety over impending student loan payments. As a College Coach finance educator, and former college aid counselor, I’ve spoken with countless graduates over the years who express the same sentiment: when they signed for those student loans each academic year, they knew they would have to pay the loans back. Somehow, though, those payments didn’t seem quite real until graduation day came and the student loan bills actually were on the way. That’s when loan amounts that may have seemed reasonable in the abstract can become overwhelming, especially when comparing minimum monthly payments to first full-time paychecks.
Question: If I’ve had credit issues in my past, will I still be able to get a loan to pay for my child’s college education?
College Coach’s college finance experts get asked this question frequently and there is no simple answer. Unfortunately the true answer is that it depends. Credit issues can certainly impact your ability to borrow and to earn a competitive interest rate on an education loan. This doesn’t mean that you should rule out using student loans as part of your paying for college strategy.
Find a Co-Borrower
Many education loans for parents are available with a co-borrower. If you have a friend or family member who is willing to back your loan, you may be able to get a loan even with poor credit.