If you have a child who is about to go to college, you’re probably already aware of the escalating costs of higher education. Fortunately, there are many options available to fund their studies by applying for financial aid either through the federal government or a private lender. Want to know more? Let’s take a look at the Parent PLUS loan.

What Makes It Different? 

As the name suggests, rather than giving money to the student, Parent PLUS loans the money directly to the parent(s) who are held solely responsible for payments. It isn’t the same as being a co-signatory on your child’s student loan where both parties are mutually responsible for repayment. 

What You Need to Know Before You Sign Up

As you will be responsible for the repayments, it’s an agreement that you shouldn’t take lightly, even if you are completely happy to fund your child’s studies. You should carefully consider the maximum amount you can afford to take out especially when the sum involved could easily run into tens of thousands of dollars per year. Your child is likely to need money to cover not only the cost of attending school but accommodation, food, books, supplies and other day-to-day living expenses. 

However, the most you will be able to borrow is the cost of attendance at the school less any other financial assistance received by your child. You’ll also need to consider that there will be a fee based on the entire sum borrowed with fees proportionately deducted from each disbursement. The repayments will also accrue interest that will be at a fixed rate of interest for the agreed term.  

Repayment Options

As soon as the final disbursement has been made to your child, you will need to start your repayments. There is an option to request a deferment which means you will not need to make repayments until six months after your child graduates if they leave school or drop below half-time enrollment. However, even if you do defer payments, interest will still accrue. So, if possible, you should try to at least make the interest payments to stop the original balance from increasing. 

Other Considerations

One major consideration is that you can never directly transfer a Parent PLUS loan to the student. Also, as you will be the borrower, you will not be able to take advantage of income-driven repayment plans offered to students. If you opt for this option to help your child pay for college and you are struggling with repayments, you may qualify for forgiveness. This may mean consolidating a Parent PLUS loan into the Direct Loan Program so that you will be eligible for Income-Contingent Repayments on the balance.

To understand more about these programs, check out the information on the Federal Student Aid website, or speak to your financial advisor.  Some private lenders also offer refinancing options that allow you to commute your existing loan into a product with better terms and a lower interest rate. It may also be possible for your child to refinance through private lenders. However, if you refinance a federal loan privately, you will lose federal perks so this is something to think about.