Essential Parent Advice: Your Credit Score & Parent PLUS Loans

Parent-Advice-Your-Credit-Score-Parent-PLUS-Loans

Want to help your child pay for their college education?

You may be considering taking out Parent PLUS Loans. They’re a very popular option.

According to the Brookings Institute, 3.4 million people owe $84 billion in Parent PLUS Loans, not including loans that have been consolidated or refinanced.

If you’re thinking of borrowing money, you may be wondering what the minimum credit score is for Parent PLUS Loan borrowers, and what the other requirements are for applicants. Below, learn about Parent PLUS Loans and what alternative financing options are available.

What are Parent PLUS Loans?

Parent PLUS Loans are a form of federal student loans. Biological and adoptive parents of dependent undergraduate students who are enrolled at least half-time at an eligible school can borrow money to pay for the student’s education.

To be eligible for Parent PLUS Loans, the student must complete the Free Application for Federal Student Aid. Parents can usually apply for PLUS Loans online, but some schools have a different application process. Check with your child’s selected school’s financial aid office for details.

Benefits of Parent PLUS Loans

There are some key benefits to Parent PLUS Loans:

  • You can borrow up to the total cost of attendance: Unlike other federal student loans, which have annual borrowing limits, Parent PLUS Loans don’t have the same caps. You can borrow up to the total cost of attendance at your child’s school minus the other financial aid they received.
  • You can qualify for an income-driven repayment plan: If you can’t afford the minimum monthly payment on the loan, you can qualify for an income-driven repayment plan if you first consolidate your loan with a Direct Consolidation Loan. After consolidating your debt, an IDR plan could help reduce your minimum payment.
  • Borrowers can pursue Public Service Loan Forgiveness: If your employer is a non-profit organization or the government, you could qualify for Public Service Loan Forgiveness (PSLF). Parent PLUS Loans are eligible for PSLF if you consolidate your loans with a Direct Consolidation Loan and enroll in an Income-Contingent Repayment plan. After 10 years of making payments while working for an eligible employer, the remaining loan balance is forgiven.

Drawbacks to Parent PLUS Loans

While Parent PLUS Loans can be useful for some borrowers, they’re not for everyone. There are some significant disadvantages to keep in mind:

  • A credit check is required: Unlike some other federal student loans, Parent PLUS Loans do require a credit check. When it comes to Parent Plus Loan eligibility, there isn’t a minimum credit score for Parent PLUS Loan borrowers. However, borrowers can’t have an adverse credit history. If you have declared bankruptcy or foreclosed on a home in the past, you may need an endorser to qualify for a loan.
  • Parent PLUS Loans have high interest rates regardless of credit: Federal loans are known for their relatively low interest rates. Unfortunately, Parent PLUS Loans usually have the highest interest rate of any federal loan. The interest rate is fixed for the length of the loan no matter how strong your credit history is.
  • Parent PLUS Loans have a disbursement fee: Parent PLUS Loans have a hefty disbursement fee. For loans disbursed after July 1, 2019 and before July 1, 2020, the disbursement fee is 4.236% and it’s deducted from the loan amount before it’s disbursed. For example, if you took out a $10,000 loan, $423.60 would be deducted from the loan. You’d receive $9,576.40 to pay for your child’s education expenses, but your loan balance would be $10,000 and interest would accrue on that full amount.

Private loan alternatives to Parent PLUS Loans

If you have good credit, it may be a good idea to explore alternatives to Parent PLUS Loans.

With a solid credit history, you may be able to qualify for parent private student loans that have lower interest rates and better repayment terms than PLUS Loans. Some benefits of private loans include:

  • Choice of interest rate type: Parent PLUS Loans only have fixed interest rates. By contrast, private student loans can have fixed or variable interest rates. If you want to pay off your loan quickly and want to take advantage of a lower interest rate, opting for a variable-rate loan can be a smart idea.
  • Lower rates: If you have good credit and a low debt-to-income ratio, you may be able to qualify for private student loans with lower interest rates than you’d get with a Parent PLUS Loan. Over time, the lower rate would help you save money on your child’s education.
  • Loan terms: With a Parent PLUS Loan, the standard repayment term is 10 years. When you take out a private student loan, you can choose a term that works for you. Depending on the lender, you can choose a term of five to 20 years.
  • Fewer fees: None of the lenders Purefy recommends charge origination fees or prepayment penalties.

Repaying parent student loans

If you plan on helping your child with their college costs, Parent PLUS Loans are just one of your financing options. But private student loans may be another way to pay for school. Depending on your credit and goals, they may be a more affordable choice.

Whether you end up taking out Parent PLUS Loans or private parent student loans, make sure you consider refinancing your parent student loans when the loans enter into repayment.

You can refinance federal or private student loans, and you can even consolidate different types of loans together. By refinancing, you can lower your interest rate, save money, and even pay off your debt early. Going forward, you’ll have just one loan to manage, with one loan servicer and one simple loan payment to remember.

Use Purefy’s Compare Rates tool to get quotes from private student loan and refinancing lenders with just one form and all in one place. No credit check required.

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