Qualifying for PLUS Loans for Parents

Parent PLUS loans are federal loans made through the direct federal loan program. While private loan rates could be more competitive, the parent PLUS loan is beneficial for parents or guardians who may have low income. Essentially, they offer more flexibility for borrowers. Learn more about this option for financing your child’s education below.

Parent PLUS Loan Eligibility

Eligibility for a parent PLUS loan is not like that of a private loan. Credit scores and debt-to-income ratios are not considered, for example. However, an adverse credit history could have an impact.

Getting Approved for the Federal Parent PLUS Loan

Applying for and getting approved for the Federal Parent PLUS Loan is not like the typical loan application process. Eligibility does not depend on your credit score, income, debt-to-income ratios, or debt-service-to-income ratios. It’s also not based on other types of debt that you may have. What is considered in the approval process is whether you have an adverse credit history. An adverse credit history is defined as having a current delinquency of 90 or more days on any debt or a five-year history for certain financial events, like bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment or a default determination. It's worth noting, though, that even parents with adverse credit histories can still obtain a Federal PLUS Loan. If the denial was due to a 90-day delinquency, the parent can make payments in order to make good on the delinquency and then reapply for the PLUS Loan. Parents can also appeal the denial if they can prove extenuating circumstances that will no longer impact their ability to repay the PLUS Loan. The Federal PLUS Loan also allows for a cosigner if the parent has an adverse credit history. Additionally, the other parent can apply for the PLUS Loan if they happen to have good credit. Finally, students can receive additional funds through Unsubsidized Loans. Students can borrow anywhere from $5,500 to $12,500 per year, depending on their year in school and dependency status.

Deferring Loan Payments While in College

Like other federal loan options, the Federal Parent PLUS Loan can be deferred while the student is in school, if he or she is enrolled on at least a part-time basis. Payments can also be deferred for six months after graduation. The interest will be added to the balance of the loan if it is not paid as it accrues. You will have to consider this into the amount that will have to be repaid starting six months after graduation. Not paying the interest while the student is in college will increase the loan balance by about a fifth.

Repayment Plans for Federal Parent PLUS Loan

There are three repayment plans for the Federal Parent PLUS Loan: • Standard Repayment Plan – This plan has the highest monthly payments but allows you to save money over time because you will pay less interest. • Graduated Repayment Plan – This plan is ideal for borrowers who may have a low income now but expect it to increase over time. This plan allows you to make lower monthly payments for an extended period of time (up to 25 years). • Extended Repayment Plan -- This plan offers the lowest monthly payment amounts but will take the longest to pay off. The Federal Parent PLUS Loan can be consolidated into a Direct Consolidation Loan, making the Income Contingent Repayment Plan an option as well. This plan makes monthly payments contingent on family size, income, etc.

Caveats to Student and Parent Borrowing

Just because you can technically borrow an “unlimited” amount to pay for your child’s education doesn’t mean you should. For instance, if your income is $50,000 per year, it would be unwise to borrow $80,000 to pay for college. You could spend anywhere from 20 – 30 years repaying student loans. A good rule of thumb when borrowing to pay for college, even student loans for parents, is to never borrow more than your annual salary. For students considering student loans, it’s best for them not to borrow more than their expected annual salary after graduation. If you need more help paying for school and you have already applied for financial aid, reach out to your child’s college to inquire about a financial aid appeal. There are a variety of circumstances that enable students to receive more financial aid than they initially qualified for that wouldn’t have been adequately portrayed on the FAFSA. Students can also consider getting a part-time job to help them pay for their college education. Many employers, especially those in college towns, provide flexible schedules for students. It would be especially beneficial to get a job with an employer that provides tuition assistance. Finally, students can continue the search for college scholarships throughout their college career. Oftentimes, students do not search for scholarships beyond their senior year in high school. However, there are millions of scholarship opportunities for college students as well. Just check out your Fastweb Scholarships to see awards that you would qualify for right now.