Everything You Should Know About Parent PLUS Loans

Is it possible to attend college and not borrow loans? Yes it is. How likely is it? Not likely. The cost of a college education is expensive. It is very rare for scholarships, grants, and work-study to cover the expense. The next method of payment to turn to is savings, 529 plans, and/or retirement. But what if this doesn’t even cover the cost of your student’s education? We previously discussed everything you should know about student loans. Now we are here to let you know everything about the Parent PLUS Loan. Parents if you need to borrow money to pay for your student’s college education, the parent PLUS loan just might be the way to go. Check out everything you need to know right here.

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7 Things to Know About Parent PLUS Loans

 A parent PLUS loan is part of the William D. Ford Federal Direct Loan Program. It is a parent loan for undergraduate students. Parents can borrow loan funds to help pay their child's college education. The great thing about the parent PLUS loan is the low and fixed interest rate, options of when to repay, and flexible repayment plans.  Photo by  rawpixel.com  on  Unsplash

1. What is the Parent PLUS Loan?
The Parent PLUS Loan is part of the William D. Ford Federal Direct Loan Program. It is a parent loan for undergraduate students. Parents can borrow loan funds to help pay for their child’s college education. Often times parent PLUS loans have a lesser interest rate and flexible repayment plans. Borrowing a parent PLUS loan is way better than using a credit card.

2. Who is the borrower?
The parent is the borrower of the parent PLUS loan.

3. Who is the lender?
The lender of the parent PLUS loan is the Department of Education.

4. Do Parent PLUS Loans have interest?
The current parent PLUS loan interest rate is 7%. The interest begins to accumulate at the time the loan is disbursed to the school. The positive thing about the interest on a parent PLUS loan is that the interest rate is fixed for the life of the loan.

 The current interest rate for the parent PLUS loan is 7%. Interest rates on direct loans are set by Congress. The interest rate is fixed for the life of the loan. This means if you borrow a Parent PLUS loan prior to 7/1/18, your interest rate will be locked in at 7% until fully repaid.

5. Are than any other fees?
Loan fees for the parent PLUS loan is a percentage taken from the principle amount at the time of the disbursement of the loan. The loan fee is essentially a processing fee.

 The parent PLUS loan fee is a percentage taken from the principle borrowed amount. Consider it a processing fee. This percentage is taken out each time the parent PLUS loan is disbursed.

6. When do Parent PLUS Loans have to be repaid?
Parents have two options when it comes to repaying the parent PLUS loan. The first option is to begin repaying the loan when it disburses to the school. The second option is to defer the loan until your student falls below half-time, withdraws from school, or graduates.

7. How do I repay a Parent PLUS Loan?
Your servicer will contact you when your parent PLUS loan is about to enter into repayment. You will work with your services to determine the appropriate repayment plan for you. Once you have set-up a repayment plan with your servicer, you will begin to make payments to your servicer.

How to Apply for a Parent PLUS Loan

You and your student must first complete the FAFSA. Once the FAFSA has been submitted it will be received by the colleges and universities listed on the school list. Each school will take the information submitted on the FAFSA along with their cost of attendance and use it to determine your student’s financial aid eligibility. An award letter will be sent to your student listing the types of financial aid in which they are eligible to receive. Most school’s list the parent PLUS loan as one option for financial aid. This does not mean you have to accept the parent PLUS loan as a payment option. Also the amount listed on the award letter for the parent PLUS loan isn’t a guaranteed amount. You first have to apply.

You can apply for a parent PLUS loan at studentloans.gov using your FSA ID, not your student’s. You will complete a parent PLUS loan application where a credit check will be performed. If you do not have adverse credit history, you will be approved. It is up to you to decide how much you would like to borrow. We recommend that you only borrow what you need to cover the cost of your student’s account balance. The amount of parent PLUS loan you are eligible to receive is the amount resulting in the cost of attendance minus all other financial aid the student is eligible to receive. Remember when deciding on the amount to borrow, you are borrowing for the entire year

Once approved for a parent PLUS loan, you will need to complete a Master Promissory Note (MPN). An MPN is a document signed by you promising to repay the loan. A Master Promissory Note can also be completed on studentloans.gov.

If for some reason you are not approved for a Parent PLUS Loan due to adverse credit history, there are a few options. The first option is to get an endorser who has good credit. An endorser should be someone who is willing to repay the loan if you are unable to repay. The endorser will need to complete what is an endorser addendum. A second option is to appeal the credit decision to the Department of Education with proof of extenuating circumstances which is cause for your adverse credit history. The third option is your student will be eligible to receive an addition $2,000 in unsubsidized loans.

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After You Apply for a Parent PLUS Loan

 It is always important to check with your child's school before you apply for a parent PLUS loan. Most schools request that you complete the PLUS loan application and MPN online, however there are some that have their own process. Also most schools have a 90 day window to apply for the parent PLUS loan. You always want to apply for the loan within the 90 day window.   Photo by  William Stitt  on  Unsplash

Always check with your child’s school before you apply for a Parent PLUS Loan. Most schools request that you complete the PLUS loan application and MPN online at studentloans.gov, however there are some that have their own process. Also most schools have a 90 day window in which they request parents to apply for the loan. If you apply before the 90 day window the application will not be processed and an additional credit check will have to take place.

After you have applied, been approved, and signed the master promissory note, your child’s school will be notified. The school will see on the application the amount in which you applied. They will check that against the cost attendance and the financial aid already awarded to determine if the amount you requested is okay. Some schools will place this amount on a new award letter and send it to the student for you and your student to accept.

The school will then disburse the parent PLUS loan. At this time the loan fee will be removed and the interest will begin accumulating. The disbursed loan funds will be applied to your student’s account. If there is a credit balance on your child’s student account, a refund will be issued to you the parent. There is an option on the application for the student to receive the refund and not the parent. Regardless of who receives the refund, it is only meant to pay for educationally related expenses.

 Parent PLUS Loan Repayment

As mentioned before, you have the option on deciding when you would like to begin repaying the parent PLUS loan. When applying for the loan, you will be asked when you want to begin repayment. There are two options of when to begin. Your first option is to begin repayment as soon as the first disbursement occurs. This is while your student is in school. The second option of when to repay is after your student graduates college. If you decide to wait and repay the loan after college graduation, you will want to mark defer on the parent PLUS loan application. The servicer will place you in a loan deferment. When deferring the loan you also have the option of using the six month grace period. This allows time for you to decide on the best repayment plan for you.

If you have the ability to repay the loan while your child is in school, we highly recommend it. It is always better to pay as you go rather than wait for it all to accumulate.

What do you think, are all student loans bad? We would love to hear from you. Please comment below.

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If your student is planning to borrow a subsidized or unsubsidized loan, be sure to download this free step-by-step guide on how to complete entrance counseling and a master promissory note. Schools require the completion of both entrance counseling and master promissory note before they will disburse loan funds to your child's student account.