Posts tagged ‘Direct Plus Loan’

March 28, 2014

‘Direct PLUS Loan made to a parent cannot be transferred to the child’

by Grace

Don’t make the mistake of thinking a Direct PLUS Loan can be transferred from the parent to the child.

As a parent borrower, can I transfer my loan to my child?

No, a Direct PLUS Loan made to a parent cannot be transferred to the child. You, the parent, are responsible for repaying the loan.

Parents may be lulled into taking on excessive student debt, believing that this obligation can later be easily transferred to their children.  A verbal promise by a student to take over his parent’s debt after he graduates is easy to make at the beginning of the college experience.  But that promise can become hard to keep later on, especially when job prospects don’t pan out or when a student struggles to get his degree.

Parent PLUS loans are ”both remarkably easy to get and nearly impossible to get out from under“.  With good credit, a parent can take out a PLUS Loan up to the total cost of attendance.  That can easily exceed $50,000 each year.

A side agreement can be made to shift the PLUS Loan payment obligation from parent to child, but the government still views the parent as ultimately responsible.

Unlike most other debt, federal student loans can rarely be discharged in bankruptcy.

When can my federal student loans be forgiven, canceled, or discharged?

You must repay your loans even if you don’t complete your education, can’t find a job related to your program of study, or are unhappy with the education you paid for with your loan. However, certain circumstances might lead to your loans being forgiven, canceled, or discharged.

Death or Total and Permanent Disability are two circumstances that allow for loan forgiveness.

Be careful.  It can be challenging to pay off college loans during your retirement years.

Related:  Qualifying for a parent Direct PLUS loan (Cost of College)

August 5, 2013

Compromise reached on student loan interest rates

by Grace

After a compromise was finally reached last week, a new student loan bill was sent to President Obama for signature.

Under the old federal student loan program, borrowers were offered a fixed rate. Under the new rate structure, which still drew opposition from nearly one-third of Senate Democrats when it passed last week, loans to undergraduates and graduate students, along with parents in the PLUS program, would be subject to a fixed rate plus the yield on the 10-year Treasury note.

Rates for loans taken out after July 1 of this year would be 3.9 percent for undergraduates, 5.4 percent for graduate students and 6.4 percent for those receiving PLUS loans. The rates are fixed over the life of the loan but would change for new borrowers each year.

In a compromise that pleased many Democrats who had initially been wary of using a rate that was subject to inflation and fluctuated with the markets, Congress set a cap on all loans: 8.25 percent for undergraduates, 9.5 for graduate students and 10.5 for PLUS recipients.

Perkins loan rates were unchanged.

20130801.COCLoanInterestRates2

* Interest is paid by the federal government during the in-school period.

Related:

April 25, 2012

Federal Direct PLUS or home equity loan for college costs?

by Grace

If you will be borrowing to pay for part of your child’s college costs, is it better to take out a federal Direct PLUS parent loan or a home equity loan?

Of course, there’s no single right answer for everyone because each option offers some advantages.  You should only consider a home equity loan if you have plenty of equity in your home.  Also remember that the window for taking out a PLUS student loan closes when your child finishes college but there is no similar time constraint on a home equity loan.  Here are a few points to keep in mind when deciding which is better for you.

Direct PLUS student loan

Home equity loan or line of credit (HELOC)

  • Lower interest rate, but HELOCs typically have high rate caps
  • Interest may be tax deductible, with some limitations and exceptions (deduction not allowed when using AMT method)
  • May be discharged in bankruptcy
  • Ties up home equity, making it unavailable for other borrowing needs
  • Risk of creating negative equity in home, limiting options to move and causing other problems.
  • Default puts home at risk for foreclosure

More information at these links:
The Federal PLUS Loan vs. Home Equity Loans
Federal Plus Loan vs. Home Equity Loan

February 17, 2012

Qualifying for a parent Direct PLUS loan

by Grace

How can a parent qualify for a Direct Plus Loan?  While some conditions must be met, the government does not impose stringent credit requirements.

From the Federal Student Aid government website:

The parent borrower must not have an adverse credit history (a credit check will be done). If the parent does not pass the credit check, the parent may still receive a loan if someone (such as a relative or friend who is able to pass the credit check) agrees to endorse the loan. The endorser promises to repay the loan if the parent fails to do so. The parent may also still receive a loan if he or she can demonstrate extenuating circumstances.

More details from FinAid:

An adverse credit history is defined as being 90 or more days late on any debt or having any Title IV debt (including a debt due to grant overpayment) within the past five years subjected to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off.

Unlike most private lenders, the government does not use FICO scores in determining eligibility for federal student loans.

Other information

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