PLUS loans, like federal student loans, are fixed-rate college loans. They carry a slightly higher interest rate than federal student loans do and are not subsidized the way that some federal student loans are, meaning that the government won’t pick up the tab for any interest that accrues while the PLUS loans are in deferment.
PLUS loan payments can be deferred until a student graduates from college, in the same way that students can defer payments on their federal student loans until they’re out of school. Since PLUS loans aren’t subsidized, though, interest will accrue from the moment the loan is issued, and then capitalize, so an increased balance awaits parents who opt to delay payments until their child has graduated.
Qualifying for Parent Loans Not As Hard As One Might Think
Unlike most federal student loans, federal parent loans are credit-based: Parent borrowers must meet certain credit criteria to qualify for a PLUS loan. Parents who have “adverse information” on their credit report will be turned down. Students whose parents aren’t eligible for a parent loan can qualify for up to $5,000 more in the lower-interest federal Stafford student loans.
Under Department of Education rules, however, this “adverse information” means serious credit problems such as bankruptcy, a recent lien or foreclosure, or bills that are currently delinquent by more than 90 days. Simply having a low credit score or low (or even no) income won’t eliminate you from consideration. As a result, the Department of Education can extend parent loans to applicants who would otherwise generally not qualify for other types of consumer credit or personal loans.
And according to many parents and financial aid officials, therein lies the problem.
College Loans Going to Unemployed and Low-Income Parents
Since a parent’s income or ability to make monthly loan payments aren’t considerations under PLUS loan eligibility guidelines, the Education Department is approving parents for parent loans even in cases where the parents clearly can’t repay the loans because of unemployment or underemployment due to disability — a state of affairs recently highlighted in the national news (“Government Approves College Loans for Parents Who Can’t Afford Them”).
Struggling parents who believe they won’t qualify for a PLUS loan will often apply anyway, in order to be rejected and thus make their child eligible for additional student loan money from Stafford student loans.
Unfortunately, some of these parents, to their surprise, are being approved for the parent loan, suddenly saddled with a financial obligation they hadn’t planned on and monthly college loan payments they don’t have the money for. Parents who accept a PLUS loan that they can’t afford and then miss enough payments to default on the loan are subject to the same penalties that defaulters on federal student loans are — collections, seizures of any income tax refunds, and wage garnishment. lawn care business loans