Parent Plus Federal Student Loans

If you were paying attention here last month, you already know I’m about to lay down some serious numbers… But what we’re talking about today isn’t just any old numbers. These are Parent PLUS loans at a 4.5% interest rate! That’s right, 4.5% APR – what would you pay if you borrowed $10,000 and paid back 12 months later? If you do the math, you’ll find out that you’d end up paying $4,500 for your loan. Not exactly a deal I hope!

Now what if I told you that you could get rid of those pesky parent loans forever?! You heard that right, you don’t have to worry about them ever again! Here are two options for getting rid of those pesky student loans and making some extra money along the way!

Option 1: Paying it Off Early

Lets start off with option number 1 first. Let’s say you wanted to make sure you paid off those parent loans before they turned 18 years old. In order to accomplish that, you’d need to set aside a minimum amount of money every month. By setting aside 10-20 percent of your income each month (you decide what percentage to use), then you should easily be able to pay off those loans 2-3 years early! However, these are not good options if you plan on pursuing higher education. Because you wouldn’t be utilizing the money that you’d be using to pay off this debt for things that you value, you’re just going to be left with less money in the long run.

So now let’s move onto option 2.

Option 2: Refinancing Your Loan

The second option for removing those annoying parent loans is refinancing your student loan. So how does that work? Well, once again you’ll need to set aside some money every month. Instead of using 20%, however, you’ll only need 15% ($15,000). Once you’ve reached that goal, you’ll be given the opportunity to refinance your loan for a slightly lower interest rate (this time 5%). When you refinance, you’ll also receive a cash advance. What’s great about this is that you can use that cash to pay off the rest of your loan quicker. This is a much better option than paying it off early because you’ll be able to put your money towards something else instead of just putting it into savings.

If you want to learn more about either option, contact me and ask me questions! I’ll answer anything you may have!

Parent Plus Federal Student Loans

Parents and students who have federal student loans may qualify for Parent PLUS Loans. Parents can borrow money for their children’s education even if they themselves don’t have enough income.

To qualify for a Parent PLUS Loan, parents need to show that they cannot afford to pay for the entire cost of their child’s college expenses based upon their own income alone. They must show financial hardship and submit documentation to prove their financial situation. In addition, all loan funds must go directly towards paying for college costs, not towards funding basic necessities.

There are eligibility requirements to qualify for a Parent PLUS loan including:

You must be a U.S. citizen or legal permanent resident.

Your family income must fall under certain limits (see below).

You must attend any accredited educational institution in the United States.

Your child must be enrolled full-time at least half time at an eligible educational institution.

Your child cannot already be receiving subsidized Stafford/PLUS loans.

You must repay the loan according to its terms. If you default on the loan, the government could garnish your wages, tax refunds, Social Security checks, and other payments.

For example, if you make $100,000 per year and your household income is less than $160,000, you would probably not be able to get a Parent PLUS loan.

If your total household income is between $160,001 and $180,000, you might still qualify for a Parent PLUS program if your family has no debt, or only mortgage debt.

The amount you are allowed to borrow for a child’s undergraduate degree is determined by the school attended, the number of years left until graduation, and whether the student plans to study arts or science.

Federal law requires a parent to repay a student loan on behalf of his or her minor child after the child graduates from high school unless the parent has died or become disabled.

In addition to loan repayment, borrowers have to pay interest on the loans while they are attending college. Borrowers must start making monthly payments within 30 days of leaving school. Payments must continue while borrowers are enrolled in school.

Students who receive the maximum Pell Grant can generally cover the remaining portion of tuition and fees. However, some schools offer additional scholarships or grants to help cover costs.

For example, University of California at Berkeley offers over $50 million in scholarships and grants annually.

Parent Plus Federal Student Loans

Why do we have student loans?

Student loans are debt incurred by students after receiving financial aid from federal and private lenders. Students may take out loans to help pay for tuition costs, books, room and board, car payments, transportation, and other related expenses. These loans are funded by various government agencies, including the U.S. Department of Education, the U.S. Treasury, the State Department of Education, and community colleges. There are many types of student loans available at different interest rates; however, they all have repayment terms ranging between 10 years to 30 years. Once a borrower reaches their loan maturity date, student loans become due. After paying off the balance, borrowers become eligible for forgiveness programs if certain conditions are met.

What happens if I don’t graduate?

If a student does not graduate and go onto post-secondary education, they will still be able to access money borrowed during school. However, they will no longer receive any additional assistance that would be given to someone who graduates. For instance, if a student borrows $10,000 in tuition and then drops out before graduation, they will only be responsible for $10,000. If this same person graduated and received a bachelor’s degree, they would owe $30,000 less than if they never went to college.

How does the Parent PLUS Loan work?

Parents can use the Parent PLUS Loan to cover undergraduate tuition costs for children under 18. Parents can get the maximum amount allowed (unsubsidized) from the federal government, while the remaining portion comes from private lenders. In order to qualify, parents need to show proof of income, assets, savings, or parental responsibility. Parents can use the Parent PLUS Loans as long as the child is enrolled full time. Also, the parent cannot have been declared bankrupt or foreclosed upon. Upon reaching 21st birthday, the loan automatically converts into a Direct Subsidized Stafford Loan. A parent using this type of loan will get low monthly payments until he or she finishes high school and enrolls in a post-secondary program.

What happens at the end of my loan term?

At the end of each loan term, you will be required to make good faith efforts to repay the loan. Borrowers may start working, getting married, buying a house, going back to school, etc., and the lender can add these activities to your payment plan. You will also need to notify your lender about any changes to your circumstances, like losing your job. Depending on your situation, you may be forced to begin making payments again. Your lender will send you statements showing how much you owe and how much you will need to pay.

Can I reamortize my loan?

Yes! With reamortization, you can lower your monthly payment schedule by making smaller payments over a period of time instead of one large payment. This option will reduce your total payments overall. To find out if this is right for you, contact your lender.

Does my credit score affect whether I’m approved for a loan?

No. Your credit history does not affect your eligibility for a student loan. Your credit score makes it easier to obtain a mortgage later on in life once you’ve built your credit history.

When should I apply for a student loan?

You should try to apply for a student loan when you first sign up for classes. Most schools offer financial aid through scholarships, grants, or work study jobs. These funds can offset some or all of your tuition costs and provide you with extra cash for things like books, housing, and meals. Getting your finances in order ahead of time will ensure you start receiving financial aid.

Parent Plus Federal Student Loans

Parent PLUS Loan

The Parent PLUS Loan was created in 2007 to help offset the cost of higher education. Since its inception, student loan debt has increased significantly. In 2016, undergraduate students had outstanding student loans totaling $33 billion dollars. The average indebtedness per borrower was $37,000. To put that into perspective, the national median home value is currently $191,900. The total amount of money borrowed by borrowers is not only impacting their current financial situation, but also could potentially lead to future credit problems. As the cost of college continues to rise, many parents have chosen to use this option to pay for school. Unfortunately, the interest rates on these loans can reach upwards of eleven percent annually. Additionally, if a parent has bad credit, they may be disqualified from receiving certain types of federal student loans. However, there are some benefits to using a Parent PLUS Loan. First, parents who take out this type of loan do not have to repay this debt until their child graduates or turns 22-years old. Second, the payment of a PLUS Loan does not affect future parental tax returns. Parents are still able to deduct payments toward their taxes; however, they must itemize deductions at a rate of 10 percent.

Federal Stafford Loan

The Federal Stafford Loan is designed to offset the costs associated with obtaining a bachelor’s degree. These loans were first introduced in 2010 and were meant to provide funding for those seeking to study business, science, engineering, or technology related degrees. Like the Parent PLUS Loan, the interest rates start off low and gradually increase over time. After ten years, borrowers are expected to pay about seven percent interest on each monthly repayment. Borrowers cannot receive any subsidies or grants to help them cover the cost of education and must meet minimum eligibility requirements. Lenders do not require co-signers on these loans, though approximately half of students borrow the maximum limit allowed.

Perkins Loan

Introduced in 1964, the Perkins Loan is designed to help fund postsecondary education expenses. Eligible applicants must be enrolled in an eligible program and plan to earn no less than 12 credits while attending school. Unlike the Federal Stafford Loan and the Federal Gradate Student Loan, the Perkins Loan requires the borrower to make payments for 20 years after completion. Interest begins accruing six months after a borrower accepts a loan and increases annually. While a borrower has little chance of being approved for a loan, borrowers can expect to pay about five percent interest on each monthly payment. Perkins Loan disbursements can be obtained directly from the U.S. Department of Education and are often tied to specific employment fields.

Parent Plus Federal Student Loans

Parent PLUS loans are federally subsidized student loans designed exclusively for parents who want to help their children pay for college. You qualify if you’re either the parent of the borrower or they live with you.

Federally Subsidized Parent PLUS Loans

You may borrow money for undergraduate expenses at any accredited post-secondary institution. However, the interest rates and terms vary based on the type of school you choose to attend. Private institutions don’t offer federal subsidies, while public schools do.

The maximum amount you may borrow varies by program, whether you’re borrowing for undergraduates or graduate students, and how long you plan to take out the loan.

But before you start filling out those application forms, know what’s involved with these loans. To learn more about the specifics of federal PLUS loans, click here.

Federal Loan Terms

To qualify for a federal PLUS loan, you need to have at least half-time enrollment as a full-time student. Additionally, you must meet certain income requirements and have no outstanding debt. Your monthly payments won’t exceed 8 percent of your discretionary income.

You’ll also have to prove that your family’s financial situation isn’t likely to improve over time. In other words, you should still expect to owe money 10 years after graduation.

What’s Discretionary Income?

Your discretionary income includes everything you earn above basic necessities. Because this is different depending on where you live, we’ve provided examples in our guide to discretionary income.

If you’re a graduate student, you can make much less than $50,000 per year. If you’re not enrolled in school, you could be considered self employed and make more than double that amount.

Income Limits

The minimum annual income limit for a PLUS loan is currently $15,500. But some programs cap the amount at $20,100. That’s assuming you intend to attend school full time.

If you decide to drop out of school, you may be able to keep making monthly payments through 60 months—or 5 years—of nonpayment. After that, though, you’d have to start paying back the entire balance, plus a penalty.

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