Pros and Cons Of A Parent PLUS Loan

With millions of students relying on financial aid every year to attend college, grants, scholarships, loans, and other programs have been devised to meet demand.  Although sometimes money runs out, usually people looking for financial assistance get the help needed.  Although government grants, scholarships, and private money in the form of a gift is the best option, loans are also available to assist with the expenses of college.  In addition to the more traditional type of student loans, one option that comes with a number of benefits is the Parent PLUS loan.

As with any form of financial assistance for college, it is imperative to understand the concept, as well as pros and cons of a parent PLUS loan.  A common mistake made by many students is grabbing the first form of financial aid approved for, which may not be enough to cover expenses or ends up costing a significant amount of money in the way of interest and fees.  For this reason, the best thing you can do is learn about the Parent PLUS loan and understand all the good and bad points.  That way, you would have the assurance this loan is right for your situation.

Before we get into the pros and cons of a Parent PLUS loan, we wanted to provide a brief overview of what this type of financial assistance is.  In summary, this type of college loan is offered by the federal government and designed for parents to secure funding on behalf of a child.  The money from the Parent PLUS loan would be used for tuition, textbooks, and other expenses associated with college.  For a parent to qualify the child must be enrolled in a college or university a minimum of half time and the credit score must be good enough for approval.  While a parent would apply for the Parents PLUS loan for an undergraduate student, a graduate student could apply for the loan in lieu of the parent.

Now, regarding the pros and cons of the Parent PLUS loan, we wanted to first provide one of the main benefits.  With this option, the loan comes with a guaranteed low interest rate guaranteed by the federal government.  Because of this, interest cannot change, period.  Another one of the advantages of taking out this particular loan is that the entire cost for an undergraduate student can be secured.  This means in addition to tuition and books, expenses such as room, board, personal expenses, and even entertainment is covered.  However, any financial assistance the student might be receiving in his or her name would be deducted from the loan amount.

Another benefit of taking out a Parent PLUS loan is that the money helps to bridge the gap between other student loans and grants or scholarships  Probably one of the aspects of this loan that parents and students alike appreciate is that with this being a non-need based loan, need for financial assistance does not need to be proven.  As long as the applicant has good credit, approval is likely.  As you can see, when looking at pros and cons of a Parent PLUS loan, many benefits exist.

Now, while there are certainly more positive aspects of this loan than negative, it is important to understand a few things that would be considered cons.  Although not a serious downside, as mentioned to qualify for this kind of college loan, the applicant must have a credit score high enough.  This means if any debt of 90 days or more shows up, any bankruptcy, discharge, judgment, repossession, foreclosure, garnishment, write-off, or tax lien appears, the request for funding would be denied.

Again, although not terrible, another “con” associated with the Parent PLUS loan is that depending on the college or university, a Financial Aid Application, also known as an FAFSA may be required.  This document is an assessment performed by the federal government in connection with the educational institution to determine the amount of financial assistance the family could provide.  Obviously, several factors would be included in making this decision but if the FAFSA were to show the parents could afford more than initially reported, the amount of the loan would be decreased accordingly.

Finally, on a positive note, remember that interest is low and guaranteed and along with this, a 0.25% repayment interest rate credit might be offered if direct deposit were set up for automatic payments.  However, on the negative side, certain fees may also apply.  For instance, a 1% federal default fee, as well as a 3% origination fee could be assessed.  Overall, the Parent PLUS loan is an excellent option to help students get through college but as with any loan, understanding all the aspects is highly important.


Keith Murray June 21, 2011 at 5:38 pm

I am a 19 year old that is kind of confused on how the education system works…My father died when my mom was 1 month pregnant with me from an auto accident which left me with no father . My mom is in her second marriage and we no longer receive social security benefits for me. I filled out my fafsa and was denied any grants and just a loan of $5,500.00 and my schooling is costing $30,000.00. My mother just filled chapter 7 last year and is worried how we are going to afford my education. I think my mom’s been through enough is there anything else we could apply for?

Autumn August 31, 2011 at 5:17 am

See if your school has scholarships you can apply for. Often there will be separate applications for these. For example, if your major is Chemistry, the Chemistry Department may offer scholarships if you apply for them. Talk to an adviser or the financial aid office. If that doesn’t work, some banks do student loans. There are three that I know of, but I can only remember Wells Fargo. They may offer you loans that you don’t have to repay until you graduate or stop taking classes, much like federal loans. There is also one where you pay $25 per month while in school, then when you graduate, you end up owing less (Fannie Mae, I think? I’m not totally sure). I went through a similar issue when I started college. There are options, but you may have to research and fill out a lot of scholarship forms. I started with fastweb , but I ended up going mostly through my school for scholarships. Hope this is helpful! Good luck!

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