Parent Plus loans are federally governed student loans. These loans are taken out by parents to fund the education expenses of their children. These loans have fixed interest rates and cover almost all of the child’s educational course expenses. The parent plus loan requires the parent or the guardian to have a clean credit history and financial standing in order to gain approval. The loans have fixed, but a little higher interest rates, as compared to subsidized loans. These loans cannot be consolidated and loan repayment starts as soon as the loan is disbursed to the parents’ accounts.
The status of the child as dependant or independant is determined by the financial lender. The parents monthly income, the number of earning and non earning members in the family as well as the amount of contribution that the parent can make to meet the financial needs of the student are all calculated before the loan amount gets sanctioned.
Advantages of Parent Plus loans
- Parent Plus loans are federally governed and therefore there are no hidden costs or terms attached to the loan account.
- Parents get to borrow money for the educational expenses of their dependent child. This gives a lot of mental satisfaction to them since they are able to help their child meet the educational goals.
- The interest rates are lower than other private loans. The interest rate on the loan amount is unchangeable and does not fluctuate with the stock market’s performance.
- The processing fees for the sanctioning of the loan are very less than as compared to that charged by other private financial institutes. It is fixed to a rate of four percent of the total of the loan amount sanctioned.
- Rates and fees are not based on credit. Parents also can benefit from showing a negative credit balance.
- The repayment period is of ten years and this is fixed.
- With forbearance, the borrower also gets the choice to delay the loan repayment and get an extension of another five years.
- Many lenders also offer money saving discounts if the parents show an excellent credit history.
- The federal government allows flexible repayment plans as per the parents’ annual income and liabilities.
Disadvantages of Parent Plus loans
- Parent Plus loan disbursement takes a longer time as compared to other loans disbursed by the private firms.
- The repayment of the loan amount begins as soon as the loan gets disbursed to the parents account.
- The loans are not subsidized as these loans are taken in the name of the parent and not the student. The parent does not get any further reduction on the interest rate under the subsidized law of the federal repayment plan.
- The loan repayment is the parents’ responsibility and therefore in case the parents fail to repay the loan, the credit score of the parent will fall thus affecting the credit report.
- As the loan is taken in the name of the parent, and not that of the dependant, the credit history of the parent plays a major role in the loan being approved.
For more tips for getting financial aid, please visit education centers.