What are Parent PLUS Loans?
Parent PLUS Loans are federal student loans offered to parents of dependent undergraduate students to assist in covering educational expenses. These loans, part of the federal student aid program, help bridge the gap between the cost of attendance and other financial aid received. Parents with an eligible dependent student can apply for a Parent PLUS Loan to support their child's education. It's essential to note that a credit check is conducted during the application process to assess the parent borrower's adverse credit history. The loan offers fixed interest rates, and repayment options include the Income Contingent Repayment Plan. Parents can apply for Parent PLUS Loans through the Direct PLUS Loan application on the Federal Student Aid website, and the funds are typically disbursed directly to the school.
Features
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Loan Funds. Parent PLUS Loans provide financial assistance directly to the parent borrower to cover educational costs not met by other financial aid.
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Loan Repayment. Repayment options are available, including monthly payment plans and the Income Contingent Repayment Plan, offering flexibility to the borrower.
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Loan Interest Rate. Parent PLUS Loans come with a fixed interest rate, providing predictability in loan payments throughout the loan term.
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Loan Limits. The loan amount is determined by the cost of attendance minus other financial aid received.
Pros and Cons
Pros
Cons
How to Get a Parent PLUS Loan?
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Have Your Student Complete the FAFSA. Start by having your dependent undergraduate student complete the Free Application for Federal Student Aid (FAFSA). This form is crucial for determining eligibility for various federal student aid programs, including Parent PLUS Loans.
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Exhaust All Scholarship and Grant Options. Explore and maximize all available scholarship and grant opportunities for your student. These forms of financial aid do not require repayment and can help reduce the overall need for loans.
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Calculate Remaining Financial Gaps. After considering scholarships and grants, calculate the remaining financial gaps between the cost of attendance and other forms of financial aid. This will help you determine the amount you may need to borrow through a Parent PLUS Loan.
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Apply for a Parent PLUS Loan. Visit the Federal Student Aid website and complete the Direct PLUS Loan application. This process involves a credit check to assess your credit history. If approved, you can borrow up to the cost of attendance, minus any other financial aid received.
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Choose the Repayment Plan. Once approved, you'll need to choose a repayment plan. Options include standard repayment, graduated repayment, and income-contingent repayment plans. Consider your financial situation and preferences when selecting the most suitable plan for you.
Requirements and Conditions
Requirements
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Parent of a Dependent Undergraduate Student. You must be the parent of a dependent undergraduate student who is enrolled at least half-time at an eligible school. This includes colleges, universities, and vocational or technical schools that participate in the federal loan programs.
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Adverse Credit History Check. You should not have an adverse credit history. If you do have adverse credit, you may still be eligible by obtaining an endorser who agrees to repay the loan if you don't, or by demonstrating extenuating circumstances to the satisfaction of the U.S. Department of Education.
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General Eligibility Requirements. You and your dependent student must meet the general eligibility requirements for federal student aid. This includes demonstrating financial need for need-based aid, being a U.S. citizen or eligible noncitizen, and being enrolled in an eligible degree or certificate program at an eligible college or career/trade school.
Conditions
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Loan Amounts. Borrowers can request loan amounts up to the full cost of attendance, as determined by the child's school. This amount is calculated by subtracting other financial assistance your child will receive, such as scholarships and grants.
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Fixed Interest Rate. Parent PLUS Loans come with a fixed interest rate, which is set at 8.05%. This fixed rate provides borrowers with predictability in interest payments throughout the loan term.
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Repayment Term. Parent PLUS Loans automatically start on the 10-year standard repayment plan. However, borrowers have the option to switch their PLUS loans to a graduated or extended repayment plan. If consolidated, PLUS loans are also eligible for the Income-Contingent Repayment (ICR) plan.
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Loan Fee. A one-time loan fee of 4.228% is deducted from the loan disbursement. This fee represents a percentage of the total loan amount and is subtracted before the remaining funds are provided to cover educational expenses.
Who Issues Parent PLUS Loans?
Parent PLUS Loans are issued by the U.S. Department of Education. These loans are part of the federal student aid program and are designed to help parents of dependent undergraduate students cover educational expenses. The Direct PLUS Loan Program is administered by the U.S. Department of Education, and it allows eligible parents to borrow funds to pay for their child's college education.
Things to Pay Attention to
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Loan Eligibility and Half-Time Enrollment. Ensure that the dependent undergraduate student is enrolled at least half-time, meeting the eligibility criteria for Parent PLUS Loans.
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Loan Request Process and Financial Aid Office. Familiarize yourself with the loan request process, which involves applying for a Parent PLUS Loan through the Federal Student Aid website. Communicate with the school's financial aid office for guidance on the application and any specific requirements.
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Loan Repayment Options and Interest Monthly Payment. Understand the various loan repayment options available, such as standard, graduated, and income-contingent plans. Be aware of the interest monthly payment and how it impacts the overall cost of the loan.
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Origination Fee and Other Loan Fees. Take note of the origination fee, a one-time fee deducted from the loan disbursement. Consider how this fee and other potential loan fees may affect the total amount you receive.
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Master Promissory Note and Valid Bank Account. Complete the Master Promissory Note, a legal document outlining the terms of the loan. Ensure you have a valid bank account for the disbursement of loan funds.
How to Repay a Parent PLUS Loan?
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Understand Repayment Options. Familiarize yourself with the available repayment plans, including standard, graduated, and income-driven options.
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Choose a Repayment Plan. Select the repayment plan that aligns with your financial situation and preferences. You can switch plans if needed.
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Initiate Repayment After Disbursement. The Parent PLUS Loan first payment typically begins immediately after the loan is fully disbursed. Be prepared to make monthly payments.
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Explore Deferment or Forbearance if Needed. If facing financial challenges, consider deferment or forbearance options, allowing temporary suspension or reduction of payments.
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Stay in Contact with Loan Servicer. Maintain communication with your loan servicer, update contact information promptly, and address any concerns or changes in financial circumstances.
Reasons for Getting Rejected for a Parent PLUS Loan
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Adverse Credit History. If the parent borrower has an adverse credit history, they may be denied approval for a Parent PLUS Loan. Problems in the credit report, such as a tax lien, can negatively impact the credit check and result in loan rejection.
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Eligibility Criteria Not Met. Failure to meet the eligibility criteria, including being a U.S. citizen, eligible non-citizen, and having a dependent undergraduate student enrolled at least half-time.
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Unsatisfactory Loan Repayment History. Previous issues with federal student loan repayment or a history of default on federal loans can lead to rejection.
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Financial Instability. Unstable financial circumstances or insufficient income may be a factor in the denial of a Parent PLUS Loan.
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Outstanding Student Loan Debt. Having significant existing student loan debt may impact the parent borrower's ability to take on additional loans.
Alternatives
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Private Parent Loan. Parents can explore private loans specifically designed for education, offered by private financial institutions. These loans may have different terms and conditions compared to federal Parent PLUS Loans.
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Private Student Loan. Students themselves can consider private undergraduate loans to supplement other financial aid. Private loan options are offered by private lenders and can help cover educational expenses not met by federal aid.
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Federal Student Loan. Dependent undergraduate students can apply for federal student loans, such as Direct Subsidized Loans or Direct Unsubsidized Loans, to help finance their education. These loans often have more favorable terms than private loans.
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Scholarships or Grants. Seeking scholarships or grants is a valuable alternative to loans. These forms of financial aid do not require repayment and can significantly reduce the overall cost of education.
Editorial Opinion
Important
How to Choose a Lender
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Make sure to confirm whether the lender is licensed to operate in your state. You can verify this information with your state regulator or attorney general.
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Check if the lender is a member of a reputable association, such as the Community Financial Services Association of America. Membership in such organizations may provide an extra level of reliability.
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Carefully review all the terms and conditions of your payday loan contract.
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Thoroughly examine the interest rates on payday loans and ensure that your contract includes a detailed breakdown of the total cost of the loan.
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Take advantage of your right of rescission. Usually, you can rescind the loan within three days after signing the agreement. Alternatively, there is typically a "cooling-off" period, which allows you several days to thoroughly review the contract before making an informed decision to enter into a consumer loan agreement based on the terms specified by the lender.
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Choosing a payday lender is a significant decision that demands careful consideration and a good understanding of how such organizations operate.
Methodology
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