PLUS Loans – it's never too late to subsidize your child’s education cost
As a parent, you want nothing but the best for your child. And that includes ensuring they receive the best education possible. However, the rising costs of tuition fees can be a daunting and overwhelming challenge for many families to overcome. This is where Plus loans come into play.
Plus loans are a type of federal student loan that allows parents to borrow money to pay for their child's education. Plus loans come with several unique benefits, making them an attractive option for families that need financial assistance to subsidize the cost of education.
Here are some important things you need to know about Plus loans:
1. Who can apply for Plus loans?
Plus loans are available to parents of dependent undergraduate students. To be eligible for Plus loans, your child must be attending an eligible school at least, half-time.
Unlike other federal student loans, Plus loans require a credit check. To obtain a Plus loan, you must have an acceptable credit score. Or you must provide an endorser who does. However, if you have undergone bankruptcy, foreclosure, or wage garnishment, you may not be eligible for a Plus loan.
2. How much can you borrow with Plus loans?
The maximum amount you can borrow with Plus loans is the cost of attendance minus any other financial aid received.
The cost of attendance includes tuition fees, books, meals, accommodation, and other related expenses for an academic year. The amount of money you can borrow is different each year and depends on your child's year in school and the program they are enrolled in.
For example, the maximum amount you can borrow for a dependent undergraduate student is $31,000 for the entire course of their education. This limit includes any loans your student may have received through the Direct Subsidized and Direct Unsubsidized Loan programs.
3. What are the interest rates for Plus loans?
The interest rates for Plus loans depend on when the loan was first disbursed. Currently, the interest rate for Plus loans disbursed on or after July 1, 2021, and before July 1, 2022, is fixed at 6.28%.
Unlike other federal student loans, Plus loans do not offer a grace period. The interest on Plus loans begins accruing as soon as the loan is disbursed.
4. How do you apply for Plus loans?
To apply for Plus loans, you must complete the Free Application for Federal Student Aid (FAFSA). Once the FAFSA is submitted and processed, your child's school will then notify you of the amount of Plus loan for which you have been approved.
When applying for Plus loans, you will need to provide some personal information including your Social Security number, date of birth, and mother's maiden name for identity verification purposes. You will also need to provide your financial information, including your income, assets, and debts, to determine your eligibility and creditworthiness.
5. How do you repay Plus loans?
The repayment of Plus loans begins within 60 days of the loan being disbursed. Repayment usually ends within ten years. However, borrowers can opt for extended repayment plans if they need more time to repay the loan.
Plus loans offer various repayment options. The standard repayment plan requires a fixed monthly payment that is spread out over a ten-year term.
Another repayment option is the Graduated Repayment Plan which also runs for up to ten years. However, Graduated repayment plans come with lower initial payments. The payment amounts gradually increase every two years.
The third repayment option for Plus loans is the Income-Contingent Repayment (ICR) plan. Under ICR, the amount to be repaid is calculated based on the borrower's annual income for the payment year. The payment also typically covers a ten-year period.
The government has also introduced extended repayment plans which give borrowers up to 25 years to repay the loan with lower monthly payments. However, the extended repayment plan comes with higher overall interest costs.
6. Are there benefits to Plus loans?
Plus loans come with several benefits that make them an attractive option for families that require financial assistance. Some Plus loan benefits include:
i. No prepayment penalty: You can make payments towards your Plus loan anytime without incurring any prepayment penalties.
ii. Loan forgiveness: In some cases, you may be eligible for loan forgiveness of your Plus loan. For example, if the borrower dies, the loan will be discharged.
iii. Loan consolidation: Borrowers with multiple loans- Plus loan, direct loans, or the FFEL Program loans- can combine them into a single loan. This consolidation may provide lower monthly payments or may lead to a longer repayment period.
7. Are there any alternatives to Plus loans?
While Plus loans offer unique benefits, they may not be suitable for every family. Other options to consider include:
i. Scholarships and grants: Several scholarships and grants are available to students that do not need to be repaid. They may cover the entire cost of tuition or a portion of it.
ii. Private student loans: Banks and financial institutions usually offer private student loans to fund educational expenditures. While they may be expensive, they offer more time to pay back than most federal loan options.
iii. Personal Loans or Home equity loans: These are other forms of borrowing that individuals can consider, although there is typically no forgiveness option available for these loans.
In conclusion, Plus loans offer many benefits and are a great option for parents who need financial assistance to pay for their child's education. It is possible and essential to secure your child's education, no matter the financial barriers. While Plus loans are not the only option, they could make a significant difference in the lives of many students. So, it is never too late to plan and secure your child's educational future.