Have you heard about a Parent PLUS loan? Maybe you’ve even taken one out to support your child’s college education. Whatever the case, if your child is nearing college age or is currently enrolled, you may be faced with the option of taking out a Parent PLUS loan. To help you make an informed decision, here are some of the most important details of the loan and what you should consider before making this loan part of your financial plan.
1. Your Child Must Fill out FAFSA Paperwork
To be eligible for a Parent PLUS loan, your child must complete a Free Application for Federal Student Aid, more commonly known as FAFSA. This application will also help you discover other means of student aid that your family qualifies for, but in the case of the Parent PLUS loan, a FAFSA will be your first step.
2. Check Your Award Letter: The Loan Option Could Already Be There
Once you receive your child’s FAFSA award letter, it’s essential to review it carefully because a Parent PLUS loan may already be offered to you. This loan is often packaged as part of a larger financial aid plan, wherein you have the option to borrow some or all of the available amount.
3. The Application Will Require a Credit Check
Although there is no income requirement, you will need to go through a credit check before you are awarded a Parent PLUS loan. As long as you have been a responsible borrower, you should qualify. However, if this isn’t the case, not all is lost. You could have a person with good credit endorse your loan, agreeing to pay it if something were to happen.
4. There Is No Annual Limit
The Parent PLUS loan is designed to fill in the gaps between what your child has been awarded (i.e., federal aid and scholarships) and their total tuition. Due to the nature of the loan, there is no annual limit that you can borrow. Of course, the less you can borrow, the better, but the money is available if you need to make sure that your child’s education is covered.
5. Rates Are Fixed
As with other loans, the Parent PLUS loan’s interest amount is dependent on market rates. Fortunately, though, once you borrow, your Parent PLUS loan rates are locked in and will not change over time.
6. This Loan Cannot Be Shifted to Your Child
Before you take out your loan, it’s essential to remember that you aren’t doing this on behalf of your student. It’s your loan to pay. If you decide that you would prefer the loan to be in your child’s name eventually, you and your child can refinance it under a private lender.
7. Your Payments Will Begin Soon After You Borrow
Unlike other federal student loans, the Parent PLUS loan payments do not begin once a student graduates but rather as soon as the loan is taken out. You will also be subject to paying a disbursement fee, which currently sits at 4.228%. It is possible to apply for a deferment on your payments, which the student loan office at your child’s school should be able to help guide you through.
8. The Loan Is Eligible for Forbearance
If you have an unexpected event in your life that causes financial difficulties, it is possible for you to apply for forbearance, which can alleviate the financial burden temporarily. Forbearance could lessen your monthly payment amount, allow you to skip multiple payments, or extend your loan’s term.
Plan for Your Student’s College with SageSpring Wealth Partners
Something important to consider is establishing a power of attorney for your college-aged child. Since college students are usually legal adults, parents may not have a say if a medical crisis were to occur. Especially with COVID-19 cases still present, a medical power of attorney can help them stay informed and make decisions in the event of an emergency.
Our advisors can help you plan for your child’s college education, no matter their age. We help provide you with the tools you need to make informed decisions and decide the best path for your family’s financial future. Contact SageSpring Wealth Partners today to schedule a consultation!
