The federal government offers students and their families a few different options to help make going to college attainable for those who can’t afford it out of pocket. With tuition rates across the board having more than doubled over the past 30 years—with the biggest percentage increase coming at public universities—it’s no wonder people are hungry for government loans. This blog will tell you Why You Should Avoid Parent PLUS Loans for College.
Parent PLUS loans are one of these options. While they should in theory be there to help learners and their parents, they can actually be more of a hindrance once you realize the drawbacks of these loans. Let’s look at some of the reasons why you should avoid Parent PLUS loans for college.
Why Should You Avoid Parent PLUS Loans?
It might not be obvious right away why Parent PLUS loans aren’t such a great option for students or their parents. To fully understand this, you have to dig into the details of this variety of loan, and why it’s best avoided.
Here are some of the key drawbacks of Parent PLUS loans:
- Not subsidized by the government: While Stafford loans for undergraduates are often subsidized, as they provide a public good. The same isn’t true for Parent PLUS loans. This means they come with a higher interest rate (10-year Treasury yield + 4.60%, capped at 10.50%). In addition to the higher interest rates, Parent PLUS loans come with a hefty origination fee of about 4.2%. The more you have to borrow with a Parent PLUS loan, the more money you’re going to be parting with at the outset. There are better options out there for getting parent loans for college.
- Less clarity on deferment: It’s standard for undergraduates to be able to defer interest and payments on their student loans until six months after graduation, or while keeping at least half-time status. While this can still be done with Parent PLUS loans, it’s not as straightforward of a process, and must be specifically requested from the loan servicer.
- No income-based repayment: Many federal student loans allow students to have some of their borrowed amount forgiven if they have income restrictions and make payments over a certain number of years. This isn’t the case with Parent PLUS loans. Even if the loan is unaffordable for you, you’re stuck with it.
- No borrowing limit: Borrowers only have to show a lack of adverse credit history to qualify for Parent PLUS loans. Since these loans can allow you to borrow as much as you need beyond what has been granted with other federal student loans, they have the potential to become unrepayable. There’s a real danger you’ll end up borrowing too much money at too high of an interest rate.
What’s a Better Option for Parent PLUS Loans?
While some might be hesitant to turn to private lenders to finance their education or the education of a child, it’s often a better alternative than Parent PLUS loans. Before you start looking at every offer out there, check out Juno. Rather than being a lender, they negotiate terms with a huge block of lending companies to find the best possible deal for their members. This can get you a better deal than what would otherwise be offered to you by Parent PLUS loans, while coming with no origination fee.
Although the student will probably still need to have a co-signer to get the loan, having good credit can get you an even more appealing deal—something missing from federal loans. When you combine these elements together, you’re in for a much better experience than you would be going with the Parent PLUS option.
Don’t fall into the trap of thinking just because a loan comes from the federal government it’s the best available to you. Exploring what’s you can get outside of Parent PLUS loans can help you land the right financial aid for your situation.
