Education & Enrichment: What Parents Need To Know About PLUS Loans
ATTENTION, CLASS OF 2019 PARENTS:
On my program this year, I am seeing a record number of parents who are willing to use a Federal Direct Parent Loan for Undergraduate Students – also known as the “PLUS” Loan – to pay for all or part of the gap in direct college costs. The “gap” is the part of the direct cost for college which is not covered by the grants and scholarships offered by the university.
PLEASE NOTE: For colleges, Direct Cost = Tuition and Fees + Room and Board.
Also, nearly all of the loans that I am seeing this year will result in 4-year principal amounts of $70,000 to $240,000. The interest on loans this year will be at a 7.7% annual rate and the term will be 10 years. This means payments of $600 to $2,500 per month for 10 years. Obviously, with those amounts, it’s a good idea to make sure that this type of loan is sustainable for your immediate future. For most families, this is between $20,000-40,000 total for the four years of your youth’s college education.
10 THINGS YOU SHOULD KNOW ABOUT PLUS LOANS
If you decide to apply for a PLUS Loan, here are some other key points you should know:
1. Know your loan. The PLUS Loan is a federal government loan, not a bank loan.
2. Read the fine print. Yes, you can find a similar loan for students, but the interest rate will be 14.5% and you will have to be the “co-borrower.” This will make it your loan anyway, and it will go on your credit record – not only your student’s record.
3. How to begin. Start the application process at the Financial Aid Office of your youth’s chosen college. Ask about their procedures and requirements for applying for a PLUS Loan.
4. Know your credit report. The application process requires a commercial credit check via Transunion, Experian, or another major credit reporting company. You will be approved if you do NOT have any ONE of the following circumstances:
- Federal or State income tax lien or levy
- Default on any payment agreement
- Mortgage foreclosure in the last 5 year.
- Chapter 9 or 11 bankruptcy discharge of debts in the last 5 years (Chapter 13 bankruptcy is okay if there’s no default)
- Charge-off or existing 90-day delinquency of more than $2,085 on a debt
- Voluntary or involuntary repossession without an agreement to pay the delinquent obligation
- “Write-off” of an existing federal student loan debt
5. You must re-apply. Each year that your student is in college, you must re-apply for a PLUS Loan, if needed.
6. Check the appropriate boxes. When you are applying for the loan, be sure to check off the boxes to indicate that you should receive the refund from the loan. Since you – not your youth – are paying the pre-financial aid costs like books, parking fees, orientation, dorm deposits, etc., you should get the reimbursement.
7. Other options. If you are not approved for a PLUS Loan, then your youth will be offered an additional $4,000 in Direct Student Loans and you will need to pay cash for the remainder of the “gap” cost in cash each semester.
8. If you are approved for a PLUS Loan, half of the loan will be made available for the fall semester and half of the loan will be made available for the spring semester. Both are paid 10 days prior to the first day of class.
9. Allow for hidden costs. Be sure to check off that you want the school to calculate the amount of your PLUS Loan when you are applying. Why? You want to be sure that your loan will cover the necessary costs, and it’s really hard to know all of the direct costs up front – especially one-time costs.
10. Important information. The loan amount of the first year will be the same each year unless your youth learns the proper student behaviors to lessen the PLUS Loan amount each year. Attend our information session on this topic.
CONTACT WEST ANGELES EDUCATION & ENRICHMENT TODAY
For questions and information on these as well as other important high school-to-college transitional topics, please contact the West Angeles Education & Enrichment Ministry office. We’ll send you an RSVP link for our information sessions which begin on April 28, 2019. Please feel free to call, text, or email, and we look forward to meeting with you and your family soon.
Deacon John Wilson, III
Education & Enrichment Program Director
West Angeles Church of God in Christ
3010 Crenshaw Blvd | Los Angeles, CA 90016
(323) 733-8300 ext. 1095/ Cell – (323) 384-1489 / email – [email protected]
PHOTOS: Main photo, Cassandra Hamer; inset photo, Sharon McCutcheon/Unsplash.