The cost of higher education is often an expensive price tag which leaves many families looking for ways to save money. Of the many options available there is one of them is the Parent PLUS Loan is the most prominent as it’s a federal loan that is specifically crafted intended for the parents of dependent students in the undergraduate program. The loan is a great way to help ease the burden of college costs However, it’s important to be aware of its complexities prior to getting into it.
What is a Parent PLUS Loan?
The Parent Plus Loan an official federal direct loan provided from the U.S. Department of Education to help parents pay for the costs of their child’s schooling. In contrast to student loans that are that are taken out by students the parent PLUS loan is the obligation of the borrower’s parent. It is a way to pay for expenses that are not funded through other financial aid sources for example loans or grants.
The process to apply to apply for this Parent PLUS loans is easy and requires parents to fill out the free Application for Federal Student Aid (FAFSA) along with separate PLUS loan application. It is crucial to remember that acceptance is contingent on an assessment of credit that examines the borrower’s credit score.
Key Features of the Parent PLUS Loan
One of the biggest advantages that comes with Parent PLUS Loan is that Parent PLUS Loan can be its fixed interest rate that guarantees monthly payments for a period of time. Its interest rates are established each year by Congress and stays constant throughout the term that the loan is in force. In addition, there are different repayment options available, such as the option of delaying payments while a student is in the school. However, interest will continue to accrue in this time.
However, despite its advantages However, even with its benefits, the Parent PLUS Loan is not without disadvantages. It comes with an origination fee, which is a proportion of the loan taken out prior to payment. This cost can raise the total amount of the loan. In addition, as the loan is the responsibility of the parent the default on repayments could result in serious financial consequences and can affect the credit score of the parent.
Eligibility and Application Process
In order to be eligible to receive a parent PLUS loan the borrower must be biological stepparent, adoptive, or adopted of a dependent undergraduate who is enrolled at least half-time at an eligible institution. In addition, the student has to satisfy the general criteria for financial assistance from the federal government.
The process of applying for aid involves two steps. The first is to ensure that their child has completed the FAFSA that determines the eligibility of the student for different types of financial aid. Once this is done parents can then submit an application for the PLUS Loan through the Federal Student Aid website. In the process of applying parents have to agree to a credit report to determine their eligibility. If the application is approved the loan amount will be calculated based on the price of attendance, less the amount of financial assistance that the student is eligible for.
Pros and Cons of the Parent PLUS Loan
Although it’s true that the parent PLUS loan could be an effective financial tool, it’s also not without its drawbacks. It’s a plus because it gives access to money that isn’t readily available via other methods which makes college more affordable. Fixed interest rates and the flexible repayment plan give financial security.
However however, the interest rate on loans is usually more expensive than federal student loans and the origination cost is added to the price. In addition, because this loan is a parents’ responsibility, the loan may be a burden on household finances if controlled with care. Parents must carefully assess the financial condition of their family and look at alternatives, like mortgages or private equity before they decide to take out an Parent PLUS loan.
Repayment Strategies and Tips for Success
The repayment of a Parent Plus Loan is made from the moment the loan is paid in full However, parents also are able to delay payments until their child is at school. After graduation, borrowers are able to select from a variety of repayment plans that include extended, standard and income-contingent plans.
To effectively manage the loan parents must make sure they are making punctual payments to avoid penalties or a default. Consider refinancing or consolidation of loan options could also reduce monthly installments or get an interest rate that is more attractive. In addition, planning for loan repayment in conjunction with other financial obligations may reduce the burden and help avoid the future financial strain.
Conclusion: Is a Parent PLUS Loan Right for You?
A Parent PLUS loan could provide relief to families who are struggling to pay the cost of college. However, it’s important to consider its advantages and drawbacks prior making the decision. Parents should take into consideration their financial health, look into other funding options, and seek out an expert in finance if required. Understanding the terms of the loan and their responsibilities is essential to make an informed decision.
