Parent College Loans...Private School or Community College?

That may be the choice you face.

Parent college loans are an agonizing decision for many families. It would be so easy, if...after college grants and scholarships, savings, Stafford loans...there just was not enough money for the school your child wanted/needed to go to.

But there could be.

Parent college loans are mostly government student loans.

There are some university loans that can be taken out by parents and some banks offer private student loans for for them as well, but a "parent loan" usually refers to a Federal Parent PLUS loan.


After all other aid is applied for, (and please check for college grants and scholarships) parents of college students may apply for a college loan in their name, for whatever else is needed. And the chances are, more will be needed. The National Association of Independent Colleges and Universities (NAICU) reported these findings in September 2008:

• Many private lenders have canceled their programs (Their rates and benefits were often better than federal student loans.) or made their credit requirements so tough that only people who didn't need loans could qualify.
• Tuition has increased again over the past year. (5.9% for private schools- 6.4% for public schools) This has more impact as the economy worsens.
• Investment income has declined. According to Sallie Mae: in 2006, 13% of college tuition was paid for with parents'investment/savings.
• All loans have become harder to get. Home equity loans and personal loans were often used to pay for college.

So, for many families with their options decreasing, it is parent college loans or nothing.

Parent College Loans...What You Need to Know

Federal Direct PLUS Loans- 7.9% fixed FFELP Loans- 8.5% fixed

Only one parent needs to apply and a FAFSA must be filed for that person even if the student has already done one. (And the parent needs to get their own FAFSA PIN.)

Also:

• Legal guardians who are not parents may not apply.
• A step-parent who is married to a non-custodial parent may not apply.
• The student is required to be registered with Selective Service, but the parent is not.
• The college is required to determine the eligibility of both the student and the parent to apply for the loan

Direct PLUS loan applications are available from the school; FFELP applications are available from the school, the lender, or your state guaranty agency.

New Parent PLUS Student Loan Laws

1. Credit Report- Although a Parent PLUS loan still requires one, you are now allowed to be up to 180 days late on mortgage or medical bill payments without being turned down.
2. Deferred Payment Option- It was normally required for parents to begin paying their parent college loans 60 days after the loan was fully dispersed. Now, through the 2009-2010 school year, parents may defer loans until 6 months after their child graduates. (To defer Direct loans call 1-800-848-0979 around two weeks after the first disbursement; for FFELP loans, contact your lender)

Interest will continue to accrue from the time that the loans would normally have started repayment. If you can at least make interest-only payments while your child is in school, you will save a lot of money. Use the accrued interest calculator to find out exactly how much. There is no subsidized Parent PLUS loan.

Parent College Loans...More Tips

• Your Parent PLUS loans cannot be consolidated with your child's federal loans.
• Your Parent PLUS loans can be consolidated with your own student loans (if you still haven't paid them off).
• Your Parent PLUS loans do qualify for "public service" federal student loan forgiveness under the College Cost Reduction and Access Act of 2007.
• Your Parent PLUS loans do not qualify for most state loan forgiveness programs.
• Your Parent PLUS loans do not qualify for the new federal income-based monthly payment formula.

If you are turned down for a Parent PLUS loan, you have the option of adding a good credit cosigner. If this is not possible, the student will become eligible for more Stafford loans (equal to the maximum amounts for an independent student).

You are responsible for repayment of parent college loans- not your child. This is your commitment to pay for their education and no matter what sort of an agreement you have with your child, it will not affect your being legally responsible for this debt.

If you take out a Parent PLUS loan, make sure you have a plan in place to make those payments. If you default, the government will garnish your wages, your social security, your tax refund and keep adding interest and penalties to the amount you owe.

And, because every little bit saved is less that you need to borrow, you should join [COMPENSATED AFFILIATE LINK] UPromise.com (it's free) and use your everyday spending to reduce college costs.

Rather than burden young people with few responsibilities to pay this debt, they have decided that people with mortgages, car payments, elderly parents to take care of, and younger children to raise, are the best ones to pay.


return from parent college loans to college loan consultant homepage