A college education these days is expensive, no doubt about it. Parents struggle to save enough as their children grow up, but it is often not enough. Federal loans through Perkins and Stafford are great, and are based on financial need, not credit, but many times they are not enough. How do you bridge the gap?
The unfortunate part is that many parents turn to private loans to make up the difference. There they meet up with stricter credit requirements, often higher interest rates, and rigid repayment terms. The better alternative is a federal Parent PLUS loan.
Easier Credit and Interest Rates
As its name implies, a PLUS loan is designed to add on to your child's Stafford and Perkins loans to fill the gap. However, your creditworthiness does play a roll, although not nearly as strict as for a private loan.
In fact, financial aid officers have the power to override credit issues if the situation warrants it. A co-signer (not your child) may, or may not, be needed, as credit warrants. As to the interest rate, it is currently fixed at 7.9%.
Better Repayment Plans
Repayment of a Parent PLUS loan is more flexible than a private loan, which typically only offers a fixed, amortized monthly payment over a 20 year repayment term. PLUS loans can use the following repayment plans:
- Standard 10 Year Fixed Payment
- Standard 10 Year Graduated Payment
- Extended Fixed (if balance is greater than $30,000)
- Extended Graduated (again, if balance is greater than $30,000)
- Income Contingent Repayment (if consolidated)
No Cap on Loan Amount
Another advantage is that they are not capped in amount for the year of school enrollment, unlike Stafford loans. The amount available is the cost of attendance at the school less any other awarded financial aid.
So as you can see, if you are looking for a way to make up for the shortfall in the cost of your child's education, you should look to a Parent PLUS loan first. It is, overall, a better bet.
If you are looking for more information about federal financial aid for college, then download my free book, Applying for Federal Financial Aid: The Definitive Guide for Students and Parents.
For more information about what happens after you graduate, get my free book, I Graduated; Now What? A Guide to Dealing with Your Student Loans.
You can also access the latest news on student loans, get answers to Frequently Asked Questions, and read articles in my Library. Continue to educate yourself as you go through the process of making smart decisions about college financing!