Saving for College – Parental Student Loans

Loans are a last resort when students search out financial aid. Today, with the high cost of education, securing a student loan has become the norm for college students. If you still need funds for college, consider taking out a parental loan to help cover the cost.

The fact is, most parents utilize loans when they cannot meet the estimated family contribution (EFC) as stated on the student aid report. The number is calculated based on the information recorded on the financial aid form (FAFSA). Parents don’t need to panic if they don’t have enough money to pay. Enter: the PLUS loan.

The acronym PLUS stands for Parental Loans for Undergraduate Students. These loans are designed for parents who need extra money to meet the financial needs of their students for college. PLUS loans are supplied by financial lenders like banks and credit unions, just like Stafford loans. The major difference is that these loans are paid to the parents and not the student.

The PLUS loan is not based on need. Parents that need help with the family contribution can apply and receive a loan. Parents that want to give their child some money for incidental expenses during the academic year can secure a PLUS loan as well. Parents can borrow as much as the full amount of the college bill for that year minus any other aid in the form of grants or scholarships that the student has received.

The PLUS loan differs from student borrowed loans. For instance, the PLUS loan has to be repaid immediately; there is no grace period. Interest on the loan accrues from the start. The first payment is due sixty (60) days after the loan is received.

The interest rates are higher with PLUS student loan. While the interest rate is variable, it can reach as high as nine percent. There is also a four percent fee for loan origination that will be charged and taken off the top before the funds are disbursed. Parents can look into payment options so that they can manage their monthly commitment without defaulting on the loan. Some PLUS loan borrowers can take as many as ten years to repay.

Parents must meet eligibility requirements to apply for a PLUS loan. The have to: 1) Have a student attending school from half-time to full-time, 2) Be the legal guardian of this student, 3) They cannot be in default on any previous loans, 4) They will have to pass a credit check, and 5) the student has to be a United States citizen or a qualified non-citizen. If parents meet all requirements, they can apply and receive a PLUS loan.

Parents have to find a lender for the loan. It can be their bank or another local institution that offers these types of federal loans. The application is filled out. When it is approved, the parent comes in to sign a promissory note that denotes the terms of the loan being issued. Lenders can send a check by computer to the financial aid office at the student’s school so no one has to wait for snail mail.

Some colleges and universities offer parental loans. If your student’s school is one of these institutions, look to see what they are offering in the way of interest and fees. Sometimes these college-sponsored loans can have lower interest rates than the federal PLUS loans. Look over the literature from the financial aid office to learn the details and terms of repayment.

Taking out student loans are not for everyone. However, in many instances they are a needed source of financial aid. Parents can help their children to avoid a personal student loan or having to borrow a great deal of money by securing a loan themselves. College student loans are definitely work considering as you evaluate your financial aid options.