Parent Plus Loans: Understanding Risks And Benefits For Parents

Parent Plus Loans: Understanding Risks And Benefits For Parents – Loan for parents PLUS is anything but a plus for your financial goals. In fact, this type of lending is a special type of toxicity because it involves the student and their mom or dad. The only thing worse than debt is hanging over a family relationship! But don’t panic if you’re already in one. There are steps you can take to pay it off quickly. And if you’re just thinking about taking out a Parent PLUS Loan, we’ll tell you how it works – and how it doesn’t.

The Parent PLUS Loan is a federal loan offered to parents of dependent students. Why did they throw “PLUS” in the name? It’s just marketing to make you feel better about going deep into debt – like calling a credit card that charges you 20% interest “Platinum”. But PLUS is also an acronym that stands for Parent Loan for Undergraduate Students.

Parent Plus Loans: Understanding Risks And Benefits For Parents

One of the biggest money lies most people believe is that borrowing for a degree is “good debt.” God! We never recommend debt, and here’s why: Debt delays your dreams. It doesn’t matter if you’re a college student or the parent of someone planning college—no one wins by going into debt. Even if it speeds your way toward a degree, it also delays most primary adult dreams—things like buying a house, getting married, or planning for retirement.

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Wiser or less risky than other types of student loans because they depend on the income of the parents. But that is not a safe assumption! The truth is, you can’t justify putting yourself at financial risk to get a college degree. (We’ll also talk about smart ways to get a degree debt-free later!)

Parent PLUS loans are really only limited to parents of students, as that relationship is legally defined. Here are some edge cases.

Nope. Only parents. No other relative can take one as a student. Which rules Uncle Hank out for a Parent PLUS loan, unless he actually adopted his niece and just wants to borrow for some reason.

Is your college-bound son already supporting himself? Good for both! In that case, you’ll be glad to know

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Get a PLUS loan for an independent student. Trust us, you’ll both be happier with less dependence on mom and dad – and no debt!

In the case of divorced parents, both parents can take out separate Parent PLUS loans. However, the total amount borrowed is still determined by the student’s total cost of attendance minus financial aid.

Stepparents can also take out a Parent PLUS Loan, but only while married to the student’s parent.

Parents with “bad credit” as defined by the Federal Student Aid Office do not need to apply. Here are some disqualifications:

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We’re always glad to see debt stopped before it starts! But don’t think those rules stop the government from finding creative ways to lend to you anyway! They are willing to overlook anything if you just get a friend with better credit to support your application! Yes. We’re talking about calling a friend from work to see if they’ll agree to pay off your son’s college debt. Could there be anything more foolish than risking your finances

Still thinking about signing up for one of these monsters? I hope not. But maybe you like horror stories. . . or fenders with a rubber neck! If so, let’s go through the steps to apply for a Parent PLUS Loan.

Step 1. Have your student complete the FAFSA. If you don’t know, it’s a free application for federal student aid. It is on the Federal Student Aid website. This is a good thing even if you and your child

Applying for any loans, as this is necessary to obtain any form of financial aid, including scholarships and grants.

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Step 2. Fill out the application. The correct title is Direct PLUS Loan Application for Parents. (Can you guess who fills it out? Yes, you.) It’s also on the Federal Student Aid site. Here you also decide how much you want to borrow – which is obviously zero. If you want to pull the trigger here (don’t do it, people!), you’d have to authorize a credit check.

At that point, the Department of Education will contact you if you have negative credit. That’s because they

I want you to get this loan! They will tell you how to appeal a negative credit report or find a cosigner. But we know you’re too smart for that.

Step 3. Sign the master promissory note. These are the conditions for repaying your loan. You’ll see it there on the same government website as the application. We really hope you haven’t made it to this step because once you sign, you (or your child if you’re co-paying) will be locked into at least 10 years of loan payments, and who knows how much interest.

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This is the part they don’t tell you about on campus visits or in glossy college catalogs – you have to pay back everything you borrow and then some! Millions of people go to college every year, forgetting that it’s a high price to pay because there are no immediate bills.

And while students with private loans can live in that bubble as long as they’re in school, the same isn’t true for people with Parent PLUS loans. The repayment schedule begins as soon as the college receives the money. It’s as accurate (and about as welcome) as a credit card bill.

As with any debt, you should pay off Kredit PLUS as quickly as possible. And the best way to do that is to list it with all your other debts and focus all the extra money on the smallest amount first – even if it’s not your PLUS loan. Everything else gets a monthly minimum until you eliminate that first debt. Then you transfer what you paid on that to the next lowest. (We call it snowball rainbow!)

If you’re already in a Parent PLUS Loan, there’s one solid approach we’d recommend for some people, and that’s refinancing. But it’s only a good option if your loans are delaying other goals (like funding retirement or cash-flow college for the next kid on the list). Refinancing will help you pay off your student loans faster by getting a shorter term with a better fixed interest rate. This means you can focus on getting out of debt and attacking your next financial goals.

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Loan for parents PLUS will be in default after 270 days of non-payment. At that point, you could face wage garnishment or having your Social Security payments or tax refunds withheld to cover the debt.

The best way to avoid that trouble is to stay out of debt altogether. The next best approach is to pay it all off as soon as possible.

Absolutely no! We hope that you have convinced yourself that he does not pay the debt. Instead, you and your child should put all your effort into finding ways to pay for college with scholarships, grants, and your own savings. Want an amazing resource from a college admissions expert? Of course you do. It’s called The Debt Free Degree – and it’s packed with tips and solutions to all your questions about covering college without loans.

Ramsey Solutions has been dedicated to helping people regain control of their money, build wealth, improve their leadership skills and improve their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press , as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn more. Written by Jennifer Calonia Written by Jennifer CaloniaArrow Right Contributing Writer Jennifer Calonia is an L.A.-based writer and editor. She covered topics like debt, saving money and credit cards. You can find her work on Business Insider, Forbes and more. Connect with Jennifer Calonia on Twitter Twitter Connect with Jennifer Calonia on LinkedIn Linkedin Jennifer Calonia

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Editor Ailea Wilkins Editor Ailea WilkinsArrow Right Editor, Student Loans Ailea Wilkins is an editor specializing in student loans. Previously, she edited content on personal and home loans and auto, home and life insurance. He has been editing professionally for almost a decade in various fields with a primary focus on helping people make financial and purchasing decisions with confidence by providing clear and unbiased information. Connect with Ailea Wilkins on LinkedIn Linkedin Ailea Wilkins

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