In 1980, the government created parent PLUS loans to address a pressing problem: college costs had gone up and many middle-income families found themselves unable to finance their children’s education from their own incomes. With these loans in place, parents no longer had to worry about covering college costs out of pocket for their kids.
These loans may have low-interest rates, but they also come with large borrowing limits that could make it difficult to repay in full. That is a risk parents must weigh carefully when considering which option is best for them.
No limit on how much you can borrow
The good news is that you can borrow much more money than you may think. Furthermore, federal student loans come with some impressive protections like income-driven repayment plans and loan forgiveness programs.
For full disclosure, the maximum amount you can borrow depends on several factors including your year in school, status as either a dependent or independent student and which loan type you select. To determine what budget-friendly expenses you can comfortably afford, speak with a financial aid counselor at your school.
Students typically have access to three types of federal student loans: Direct Subsidized Loans, Direct Unsubsidized Loans and Direct PLUS Loans. Remember to fill out the Free Application for Federal Student Aid (FAFSA) in order to be considered for these funds; additionally, don’t forget about other forms of financial aid like grants and scholarships that may be available as well!
There’s a credit check
When applying for a plus loan, you must consent to a credit check. The government will review your report to see if there are any adverse credit histories and will deny your application if this occurs.
Therefore, we suggest that you access your free credit report ahead of time to check for any negative marks on your record. Doing this will enable you to comprehend the full extent of your borrowing power and minimize debt-related obligations.
During the credit check process, you may opt to add an endorser (a person with excellent credit history who agrees to cosign the loan). Endorsers aren’t necessary for federal student loans; however, they can make the application process much smoother and could help boost your chances of approval for a PLUS loan.
If your application is denied due to an adverse credit history, you have the right to appeal. Furthermore, if there are extenuating circumstances that contributed to the problem with your credit, documentation may be provided.
There’s no grace period
A grace period is the period of time in which you don’t have to begin repayment on your student loans. This period usually lasts six months for federal student loans, though it may differ by lender.
If your student loan has a grace period, now is an ideal time to begin building financial stability and creating a budget. Not only will this save money on interest payments, but it will also reduce your total loan payment over time since most loans begin accruing interest immediately after being approved.
In the meantime, make sure you stay current on your loan payments and contact your loan servicer if you’re having difficulty affording them. You may also request a forbearance or deferment in order to temporarily postpone payments until you feel more prepared.
Consolidating student loans will result in the loss of your grace period, but it can give you one loan with a lower monthly payment and interest rate. Furthermore, consolidation allows for the extension of repayment term which could prove helpful should financial difficulty arise down the line.
There’s a repayment plan
You have several repayment plans to choose from, each tailored to meet your individual needs. The standard plan features a 10-year repayment term with fixed payments.
Alternatively, you could select a graduated repayment plan which has payments that gradually increase over 10 years. This option might be advantageous if your income is currently low but expected to increase over time; however, keep in mind that it also carries higher interest costs.
Parents may want to consolidate their PLUS loans in order to reduce monthly payments and possibly qualify for forgiveness based on employment status. However, doing so may limit access to certain loan forgiveness programs.
To determine which repayment plan is ideal for you, utilize the federal student aid office’s Repayment Estimator tool. Alternatively, ask your loan servicer for more detailed information. No matter which option you select, ensure that you act quickly and remain current on payments to avoid losing eligibility for financial aid.