The hidden hazard of PLUS Loans For Parents
Most parents will do whatever it takes to make sure that their student gets the best education, even if that means taking on some of the debt burden. However, mom and dad need to be wary about certain loans that offer what seems like a simple solution to affording a big-money institution, because many of the safeguards that are in place to help students with loan payments don't carry over to their parents.
The Department of Education offers the PLUS Loan, which allows parents to take out financial aid for their undergraduates instead of bogging their students down with the debt. These loans are incredibly easy to attain no matter what a parent's income bracket. This makes PLUS Loans incredibly attractive to students who get accepted to expensive colleges but can't qualify for much financial aid. In fact, many of the more costly institutions will include PLUS Loans in their financial aid package in an attempt to make the school seem more affordable.
For some parents, these loans can be the top of a slippery-slope, as they may easily get in over their head taking out loans that are far beyond their means. Because income isn't a huge disqualifier in applying for PLUS Loans, the government may supply funding that is dangerously beyond a parents means.
These loans don't have the safety nets afforded students who finance their own education, or who at least take out loans in their own name, should payments get out of control. Government repayment options like income based repayment (IBR) plans don't apply to PLUS loans, however parents can extend their loan repayment term making their loans even more expensive over time. So if a parent gets approved for a PLUS loan at the fixed rate of 7.9 percent, they will most likely be stuck paying this no matter how much it digs into their finances.
Before making a brash decision about paying for your student's college education, take into account what is your family's long-term fiscal outlook. The financial aid counseling offered by College Financing Group can help parents forecast life after graduation once they have considered all available options.