PLUS Loans – it's never too late to subsidize your child’s education cost
Paying for college education is one of the most significant expenses a parent can incur during their child’s growing years. According to the College Board, the average cost of tuition and fees for the 2020-2021 academic year was $10,560 for state residents at a public college, $27,020 for out-of-state residents attending public colleges, and $37,650 for private colleges. These skyrocketing tuition costs leave parents with no option but to turn to loans to cover their costs.
While students are eligible for several federal student loan programs, some loans may not cover the full cost of attendance. This is where the PLUS Loan Program comes into play. The Parent PLUS Loan is designed to help pay for college expenses not covered by other financial aid, such as scholarships, grants, and student loans.
What are PLUS Loans?
The PLUS (Parent Loan for Undergraduate Students) program provides a way for parents to borrow money to cover the costs of their children’s education at undergraduate and graduate levels. The PLUS loan is not based on the student’s creditworthiness, but that of the parent. The loan is made to the parent, and the parent is responsible for repayment.
Parent PLUS loans are available to parents with dependent students enrolled at least half-time in an eligible school. The loans are also available to graduate and professional students, who can also receive a Graduate PLUS Loan.
The loan amount parents can borrow varies depending on the student’s cost of attendance, minus any other financial aid received, and is subject to credit approval. The interest rate of a PLUS loan is fixed, meaning it won’t change over the life of the loan.
How do PLUS Loans work?
PLUS loans are disbursed directly to the school to pay for the child’s tuition, fees, and room and board (if living on-campus). Any excess funds, such as academic scholarships or grants, are paid directly to the student’s account.
The loan payment begins once the loan is fully disbursed. Parents can choose to make payments while their child is still in school or defer payments until six months after the student graduates or leaves school. If deferring payments, interest will continue to accrue, and the overall amount will increase.
What are the benefits of PLUS Loans?
The PLUS Loan program offers several advantages to parents who need to finance their child’s college education.
Firstly, the application process is straightforward and can be done online or through the school’s financial aid office. After filling out a Free Application for Federal Student Aid (FAFSA), parents can apply for a PLUS loan separately.
Secondly, the loans have a fixed interest rate that is usually lower than private loans, making them more affordable over time.
Thirdly, the PLUS loan does not require collateral or co-signers. Unlike private student loans, the borrower’s credit history and income are the primary factors lenders consider when granting the loan.
Lastly, repayment options for PLUS Loans are flexible. Parents can choose to repay the loan over ten years or more, depending on the amount borrowed. They can also change their repayment plan if they experience financial difficulties.
What are the drawbacks of PLUS Loans?
Although the PLUS loan program offers several benefits, it is not without its drawbacks.
Firstly, the loan amount is limited to the student’s cost of attendance, minus other financial aid received. If the student’s expected family contribution is already high, the loan may not cover the full cost of education.
Secondly, the interest rate for PLUS loans can be higher than other federal student loans. For example, for the 2021-2022 academic year, the interest rate was set at 6.28%, while undergraduate Direct Subsidized Loans had an interest rate of 3.73%.
Lastly, repayment of PLUS loans can be challenging for some families. Unlike federal student loans that offer forgiveness options, such as Public Service Loan Forgiveness or Income-Driven Repayment Plans, PLUS loans do not offer similar options. Parents must repay the loan in full, even if their child did not complete their degree.
Alternatives to PLUS Loans
If parents are concerned about the drawbacks of the PLUS loan program, there are alternatives available to help finance their child’s education.
Scholarships and grants are the best options for reducing the cost of education. Families should research and apply for all the available scholarships and grants that match their child’s qualifications.
Private student loans are also an option, but they come with higher interest rates and less favorable terms than federal loans. Families should use private loans only as a last resort.
Federal Work-Study programs are another option. Students can work part-time on-campus or off-campus while attending school. The program provides a way for students to earn money to pay for their college education while gaining valuable work experience.
Conclusion
Paying for college education is a significant financial obligation that can leave parents struggling to provide for themselves and their children. The PLUS loan program offers a way for parents to subsidize their child’s education cost. The program features several benefits, including a straightforward application process, flexible repayment options, and no collateral requirements.
However, families should be aware of the potential drawbacks of PLUS loans, such as higher interest rates and limited payment options. It is essential to research and consider all financing options available before committing to any loan program.