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. Parents must begin to repay the PLUS Loan after it is fully disbursed for the academic year, but payments can be deferred upon request. Though the PLUS Loan is borrowed one year at a time, parents should consider the cost of borrowing for the entire college education before signing on the dotted line.
Parents may have seen the PLUS loan offered as part of their child’s financial aid package, but they will still need to apply for this loan. It’s important to note that the PLUS Loan is still an option for parents at schools that did not include it as part of the student’s financial aid package. However, some parents may not qualify for this loan; bankruptcies, liens, and outstanding unpaid bills on a credit report can impact the ability to borrow a PLUS Loan.
To be approved for a Parent PLUS Loan, the borrower must be the parent of the dependent college bound student who is or will be enrolled at least half time in a degree or certificate granting program. Families are directed to apply for the PLUS loan through the college their student is attending. Approval is dependent on a credit check that determines if the parent has an adverse credit history. An adverse credit history is defined as being more than 90 days late on any debt or by any of the following:
- Default on any repayments due on federal higher education debts
- Bankruptcy within the past five years
- In the foreclosure process or been foreclosed on within the past five years
- Tax liens within the past five years
- Wage garnishments
- Accounts listed as charge-offs/unpaid write-offs
Check back with us next week when we explain the steps you can take if you’ve been denied access to a Federal Parent PLUS loan!