5 Reasons a Federal Parent PLUS Loan may be a Mistake

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Today’s parents are borrowing more, and more often, than parents of years’ past to help pay for their children’s educations. As a result, managing a federal Parent PLUS Loan, or other student debt, often competes with other important family priorities.

With so much on the line, making the best borrowing decisions is crucial!

Here are a few reasons a federal Parent PLUS Loan just doesn’t make sense…

The Student hasn’t Hit Their Borrowing Limit.

Before taking any parent loan, and especially a Parent PLUS Loan, be sure your child has maxed out all student loans available for the academic year. Interest and fees on student loans are significantly lower, meaning the student loans will cost less over time.

Private Student Loans could be Less Expensive.

Interest rates on these loans often are lower than the rate charged on Parent PLUS Loans. Many lenders don’t charge origination fees; but, if they do, such fees often are lower than that levied on Parent PLUS Loans.

The catch: the rates paid on the private student loan will depend on the parent’s credit score and other qualifications.

.Shop around to see if a private student loan would cost less than a federal Parent PLUS Loan.

You want Your Student to Share Responsibility.

The unfortunate reality inherent in almost every family’s college planning campaign is that parents need to help cover the cost of attendance. For families who want the child to share responsibility, cosigning a private student loan may be the option. However, this option is available only on private student loans.

Bear in mind, however, even though a parent helps the child cover the cost, if the child fails to pay for any reason, the parent is responsible for repayment of the loan.

You’re Helping Your Child Pay for Grad School.

In this case, private student loans will be the only option. However, delay this option until all student options have been exhausted.

Like undergrad students, grad students might have access to federal aid and student loans that are a better deal. Evaluate all options to identify the least expensive means of financing the degree.

You Can’t Afford the Payments.

If considering a federal Parent PLUS Loan, be careful. Borrow only what you can afford to repay.

While the limit on Parent PLUS Loans focuses more on what the education costs than ability to repay, private lenders consider debt-to-income ratio when evaluating applications. Parent PLUS Loans have no income requirements.

Parents can borrow the amount needed to cover their child’s educational expenses. But, just because it’s available doesn’t mean you can afford it.

Be sure payments can be managed when added to the current debt scenario, as it’s likely you’ll be paying on that debt for the next 10-14 years.

Contact our Professional College Planners for information about the debt elimination program we build into the college planning campaigns we help families design and implement.   We provide parents peace of mind, knowing they have a plan that won’t negatively impact their future for the benefit of their children.

 

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