You did everything you could as a parent to help get your child into college: ensured they got good grades, gave advice on their college essays, and took them on university tours. Now comes the hard part: figuring out how to pay for it.
You likely know that one of the first steps in this process is having your child fill out the Free Application for Federal Student Aid (FAFSA) and that it could unlock access to a federal loan for parents called a Parent PLUS Loan. In fact, over 3 million government-issued Parent PLUS Loans were taken out last year. But there are a lot of details about the FAFSA and Parent PLUS Loans you might not know.
Here are seven key things to be aware of with the FAFSA to get a Parent PLUS Loan.
1. You and your child need to fill out paperwork
Although your child can fill out the FAFSA, if they’re claiming themselves as a dependent and you are looking to get a Parent PLUS Loan, you will need to fill out some paperwork as well.
After your child has done the initial legwork, you can complete the FAFSA to get a Parent PLUS Loan by logging in to StudentLoans.gov. You will then follow a set of directions that vary slightly depending on the school to which you are applying. You will be asked to provide such information as your income, assets, and agree to a credit check.
If you are eligible for the Parent PLUS Loan through the FAFSA, you will have to sign a Master Promissory Note agreeing to the loan terms.
Only biological and adoptive parents of a dependent student can request a Parent PLUS Loan, as well as a stepparent so long as they’re married to the student’s parent. Divorced parents are also each eligible to request Parent PLUS loans as long as the loans don’t exceed the total borrowing limit.
2. You can’t have an adverse credit history to be eligible
When filling out the FAFSA to get a Parent PLUS Loan, you will have to agree to a credit check. The government is not looking at your credit score or debt-to-income ratio, but rather if you have an adverse credit history since your eligibility for the loan is not determined by financial need.
You might not be eligible for a Parent PLUS Loan through the FAFSA if you have any of the following in your recent credit history:
You have $2,085 in total debt or more that is 90 or more days delinquent or that has been placed in collection in the last two years.
You’ve faced “default, foreclosure, repossession, bankruptcy discharge, a tax lien, wage garnishment, or write-off of federal student loan debt” in the last five years before the credit report, according to Studentaid.ed.gov.
3. But you still have options if you have an adverse credit history
If you do have an adverse credit history as stipulated by the government, don’t freak out. You still have options:
You can get an endorser who doesn’t have an adverse credit history to cosign the loan. The cosigner can’t be the student for which you are requesting the loan.
You can prove to the U.S. Department of Education that there are “extenuating circumstances” leading to your adverse credit history.
If you just have the 90-day delinquency, you can resolve the issue by bringing that account up to date and reapplying for the Parent PLUS Loan.
Your child might be able to receive more money through a Direct Unsubsidized Loan.
4. You might be eligible to borrow more than you can afford
There’s a reason there was over $80 billion worth of Parent PLUS Loan debt last year. Even if you are eligible to receive a Parent PLUS Loan through the FAFSA, it doesn’t necessarily mean you can afford it.
The government could offer you a substantial loan, so you should look at your finances to ensure you can pay it back on the required schedule. Since you, not your child, are on the hook to pay it back, it’s best not to borrow more than you can afford to pay back in 10 years (the standard federal loan repayment terms). A good rule of thumb is not to borrow more than your annual income, and a lot less if possible.
5. You’re not eligible for IDR plans
Although your child might have income-driven repayment options for their federal loans, you do not. You must stick to the standard 10-year repayment plan, but you do have some other repayment options if you consolidate your loans or if you’ve borrowed more than $30,000 in federal student loans.
Extended Repayment plan: With this plan, you would have a longer time to pay off the loan (up to 25 years) and it would reduce your monthly payments. But this would increase the overall total amount of the loan as you would pay more in interest due to the longer repayment period.
Graduated Repayment plan: With this plan, your first monthly payments would be slightly more than the monthly interest amount. The monthly payment would then increase every two years, but you still have to pay the loan back in 10 years.
6. Payments can be deferred, but interest will accrue
Under the standard FAFSA and Parent PLUS Loan rules, you will be required to start paying back the loan 60 days after it’s fully disbursed. This would happen while your child is still in school. If that’s not possible, you can defer repayment for six months after your child graduates or drops below half-time enrollment status.
Forbearance is also an option in extenuating circumstances such as being in a rehabilitation facility full-time, facing unemployment, or serving in the active military. Just remember, if you defer any payments, interest will accrue meaning you will pay more in the long run.
7. Parent PLUS Loans can’t be transferred to the student
A Parent PLUS Loan is always in the parent’s name and not the child’s, so it is your responsibility to pay it back. It is never possible to later transfer the loan to your child.
Your only option would be to consolidate the federal loan into a private student loan, but then you would lose any protections (standard interest rates, deferments, etc.) offered by the government. Also, your child would likely need a cosigner anyway for a private student loan, and they might turn to you, which would affect your credit report.
Knowing the basics of a FAFSA to get a Parent PLUS Loan is key
Figuring out the ins and outs of student loans can be difficult. There are a lot of moving parts, paperwork, requirements, and more. If you know a few important basics, you’ll be able to confidently decide whether it’s in your financial best interest to take out a Parent PLUS Loan.
Review these tips above, and if you’re still unsure how this will affect your bottom line, speak to the college’s financial aid department.
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of March 18, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 0318/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
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3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
4 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.5% effective February 10, 2019.
5 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3|
|2.54% – 7.27%1|
|3.23% – 6.65%2|
|2.69% – 7.43%4|
|2.98% – 9.72%5|