For parents who want to help their children pay for school, federal Parent PLUS Loans are one of the best options available. In fact, the office of Federal Student Aid reported that over 3.5 million borrowers had Parent PLUS Loans in the fourth quarter of 2017.
However, not all parents can qualify for a Parent PLUS Loan on their own. Unlike some other forms of federal student loans, PLUS Loans require a credit check. Poor credit can make it impossible to take out PLUS Loans yourself.
How your credit history affects your Parent PLUS Loan application
Federal loans are a smart first choice when it comes to borrowing money for your child’s education. They tend to have lower interest rates, more flexible repayment terms, and more benefits than private student loans. With a fixed interest rate of 7.00%, Parent PLUS Loans can be a more affordable option than private loans.
To qualify for a Parent PLUS Loan, you must be the adoptive or biological parent of a student. In some cases, stepparents can also qualify. Your child must be a dependent undergrad and enrolled at least half time in school.
Unlike other forms of federal student loans, such as Direct Subsidized Loans, Parent PLUS Loans require a credit check. If you have an adverse credit history, the government could deny your application.
The office of Federal Student Aid considers you to have an adverse credit history if you meet one of the following:
- You have debt with an outstanding balance greater than $2,085 that’s delinquent by 90 or more days.
- During the past five years, you’ve been subject to a default determination; discharge of debt in bankruptcy; foreclosure; repossession; tax lien; wage garnishment; or write-off of federal student aid debt.
If you have any of those items on your credit report, you’ll likely be unable to get a Parent PLUS Loan.
4 alternatives to consider if your application was denied
If you can’t take out a Parent PLUS Loan for your child’s education, there are other ways to get the money you need. These four alternatives can help you find funding.
1. Apply with an endorser
Even with poor credit, you might be able to qualify for a Parent PLUS Loan. You can apply for the loan with an endorser. An endorser acts as a guarantor on the loan. The endorser, usually a relative or friend with good credit and a stable income, is responsible for the loan if you fall behind on your payments.
Having an endorser lowers the risk for the lender, so the government is more likely to issue you a loan than if you applied on your own.
2. Provide documentation of extenuating circumstances
In some cases, your adverse credit history can be the result of extenuating circumstances. If that’s the case and you’re now back on your feet, you might be able to get a Parent PLUS Loan by filing an appeal with the Department of Education.
If you apply and are denied based on your credit history, you’ll receive a notification on how to appeal the decision and submit documentation of extenuating circumstances. You’ll also be required to complete PLUS Loan counseling.
3. Help your child apply for Direct Unsubsidized Loans
If you cannot qualify for Parent PLUS Loans because you have an adverse credit history, your child might be able to take out more Direct Unsubsidized Loans to fill the gap. Direct Unsubsidized Loans, where your child is responsible for all interest that accrues on the loan, have an interest rate of 4.45% and can be a cost-effective borrowing option.
Contact your child’s school to discuss your financial aid options and to see if additional Direct Unsubsidized Loans are available.
4. Look for other funding sources
If you have poor credit, taking out private student loans probably isn’t an option either. You’re unlikely to be approved. Even if you’re approved, you’ll likely pay much higher interest rates than you would with federal loans.
Instead, another way to support your child is by helping them find and apply for grants and scholarships. Your child can combine multiple scholarships and grants to reduce their college costs and limit their need for student loans.
Use our guide to state financial aid grants to find money for your child’s education.
Your child can also use the tips in our all-inclusive guide to college scholarships for high school seniors to find financial aid.
Helping your child pay for school
If you have poor credit, it might be impossible to get a Parent PLUS Loan on your own. But there are tools to help you build credit if you’re having trouble. In the interim, applying with an endorser or submitting documentation of extenuating circumstances might help you qualify for a federal loan.
If your application for a PLUS Loan is still denied, don’t be discouraged. You can help your child complete their education. For more ideas, here’s how you can help your child pay for college without spending a cent.
Need a student loan?Here are our top student loan lenders of 2018!
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