Five facts everyone should know about parent student loans
November 28, 2017
It may be hard to believe, especially when you are in the umpteenth argument about teeth brushing or bedtime, but parents do have a huge influence on the lives of their children.
Numerous studies reveal that the influence of parents on a child's academic success is critical. Beyond being a positive influence, parents can also help their college-age children pay for the education.
Parents who haven't been able to save enough for their child's education may consider a federal parent loan (Direct PLUS Loan) to cover some of the costs.
Here five important facts parents need to know before taking out a Direct PLUS Loan:
- What amount can be borrowed? The annual maximum amount for a Direct PLUS Loan is the difference between the cost of attendance and any financial aid the student receives.
- How much in interest and fees are charged on the loan? The current interest rate on a Direct PLUS loan is 7 percent. There is also a loan fee, which is a percentage of the loan amount. Currently, the fee is 4.264 percent of the loan amount.
- Who is responsible for repayment? Even though the loan benefits the student, the loan is in the parent's name – not the student's name – and the parent is responsible for repaying the loan.
- How does a parent qualify? The student must complete a Free Application for Federal Student Aid (FAFSA) before a parent can apply for a Direct PLUS Loan. No collateral is needed, but it is a credit-based loan and a credit check is required.
- When does the loan have to be repaid? Parents are required to start repaying the loan after the loan is fully disbursed, with the first payment due no more than 60 days later. However, parents can request a deferment or other repayment options.
Though parents may sometimes argue with their children, one thing is for sure – most parents want the best for their children – even it mean taking on additional debt. Before taking out a Direct PLUS Loan, parents should make sure that they've helped their child obtain as much financial aid (especially financial aid that doesn't have to be repaid) as possible.