The Pros and Cons of a Federal Parent PLUS Loan

Parent PLUS loan is a federal student loan that is designed to help parents pay for their children's education. In order to qualify, the applicant must have a child who is an undergraduate student that is enrolled on at least half-time basis in federally recognized colleges and universities. Unlike other federal student loans, it can cover as much as 100 percent of the college attendance costs. PLUS loans have many advantages, but they also have a few downsides that all applicants should be aware of.

Parent PLUS Loan Basics

The Parent PLUS Loan will cover all of the college attendance expenses for one school year. If the student received any other form of financial aid, it's total value will be subtracted from the Parent PLUS loan. The parents will have to start repaying the loan either sixty days after it's fully disbursed or six months after the student is no longer enrolled. Parents can obtain a Parent PLUS loan through one of the two federal programs. The parents can only borrow from one program at a time. They include:

  • Federal Direct Student Loan Program (FDSLP) - under this program, the parents get the PLUS loan directly from the federal government.
  • Federal Family Education Loan Program (FFELP) - under this program, parents get the PLUS loan from private lenders. These loans are backed by federal government, which allows them to lend more money than what they would otherwise be able to lend.

Advantages of a Parent PLUS Loan

The Parent PLUS loan has a number of advantages over other federal student loans. They include:

  • Affordable interest rates and other fees - all parent PLUS loans have fixed interest rates. The rates are set at 7.90 percent for FDSLP loans and 8.50 percent for FFELP loans. The Parent Plus loans do not require any collateral and have no pre-payment fees. The rates are subject to change with market conditions.
  • Variety of repayment plan options  - as mentioned before, parents can either start repaying the PLUS loan 60 days after the loan is disbursed or six months after their child graduated/left college. They can either repay the loan in bulk or installments. They can choose either a standard repayment plan (where the parents have to make fixed monthly payments), a graduated repayment plan (where the payments gradually increase every month) or an income-sensitive plan (where payments are adjusted based on the parents' annual income). 
  • Repayment plan flexibility  - If, for some reason, the parents can't repay the loan at any point before the loan is repaid in full, they can apply for either deferment or forbearance. In the former case, their payment obligations are postponed for a year. In the later case, the payment obligations are modified to better suit their financial circumstances. 
  • Tax benefits - parent PLUS loan interest payments qualify as tax deductions. 

Downsides of a Parent Plus Loan

Parent loans also have a few downsides. The parents must have a good credit history in order to qualify for the loan. They may be able to get an exemption from this requirement by showing that their low credit score is due to some extenuating circumstances, but this can be a long, complicated process. Furthermore, the loan is only issued for one year, so that parents must reapply ever year in order to get it. The problem is that the circumstances can change dramatically from year to year, and they may wind up losing their eligibility. 

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