by The cost of higher education in the United States has been rising at an alarming rate, making it increasingly difficult for families to afford college tuition. To help fill this gap, many parents turn to Parent PLUS loans, which are federal loans that allow parents to borrow money to pay for their child’s education. However, while these loans may be helpful in the short term, they can create significant long-term financial burdens for families. In this article, we will explore the burden of Parent PLUS loans and provide tips for parents on how to cope with debt.
What are Parent PLUS Loans?
Parent PLUS loans are federal loans that allow parents to borrow money to pay for their child’s education. These loans are available to parents of dependent undergraduate students who are enrolled at least half-time in a degree or certificate program at an eligible school. The maximum loan amount is the cost of attendance minus any other financial aid received by the student.
Unlike other federal student loans, Parent PLUS loans require a credit check. Parents must not have an adverse credit history to be eligible for the loan. Adverse credit history is defined as having any of the following in the past five years: current delinquency of 90 or more days on any debt, or have had a debt sent to collection or charged off during the past two years.
The interest rate on Parent PLUS loans is fixed and is set by Congress each year. The rate for the 2021-2022 academic year is 6.28%. In addition to the interest rate, there is also a loan origination fee that is deducted from the loan amount before the funds are disbursed.
Related: Private vs Federal Student Loans: Which is Better?
The Burden of Parent PLUS Loans
While Parent PLUS loans can be a useful tool for parents to help pay for their child’s education, they can also create significant long-term financial burdens. Here are some of the ways that Parent PLUS loans can be a burden:
- High-Interest Rates: The interest rates on Parent PLUS loans are higher than those on other federal student loans. This means that parents will pay more in interest over the life of the loan.
- No Income-Driven Repayment Options: Parent PLUS loans do not qualify for income-driven repayment plans, which can make it difficult for parents who are struggling financially to make their monthly payments.
- Limited Forgiveness Options: There are very limited forgiveness options for Parent PLUS loans. The only way to have the loan forgiven is if the borrower or the student dies, or if the borrower becomes totally and permanently disabled.
- Parental Responsibility: Parent PLUS loans are the responsibility of the parent borrower, not the student. This means that parents are on the hook for the full amount of the loan, regardless of whether or not their child completes their degree or is able to find a job after graduation.
- Co-signing: When parents take out a Parent PLUS loan, they are essentially co-signing for their child’s education. This means that if the child is unable to make their payments, the parents are responsible for the loan.
Related: Student Loans and Financial Literacy: Teaching Students to Make Informed Choices
Tips for Coping with Parent PLUS Loan Debt
If you are a parent who has taken out a Parent PLUS loan and is struggling with debt, here are some tips to help you cope:
- Consider Refinancing: Refinancing your Parent PLUS loan may be a good option if you have a good credit score and can qualify for a lower interest rate. This can help you save money on interest over the life of the loan.
- Explore Payment Plans: While Parent PLUS loans do not qualify for income-driven repayment plans, there are other payment plans available that can help make your monthly payments more manageable. Talk to your loan servicer about your options.
- Prioritize Your Debt: If you have multiple sources of debt, prioritize your Parent PLUS loan payments. This will help ensure that you are making progress on paying down your Parent PLUS loan, which can help alleviate some of the stress associated with debt.
- Budget Carefully: Create a budget that takes into account your Parent PLUS loan payments. This will help you stay on top of your monthly payments and ensure that you are not overspending in other areas.
- Seek Financial Assistance: If you are struggling to make your monthly payments, consider seeking financial assistance. There are many organizations that offer financial counseling and assistance to help individuals cope with debt.
- Communicate with Your Child: If your child is the beneficiary of the Parent PLUS loan, it is important to communicate with them about your financial situation. They may be able to help by contributing to their own education costs or finding ways to reduce their expenses.
- Look for Alternative Funding Sources: Consider alternative funding sources such as scholarships, grants, and work-study programs to help reduce the amount of money you need to borrow.
Related: Student Loan Forgiveness: What You Need to Know
Conclusion
Parent PLUS loans can be a useful tool for parents to help pay for their child’s education, but they can also create significant long-term financial burdens. To cope with Parent PLUS loan debt, parents should consider refinancing, explore payment plans, prioritize their debt, budget carefully, seek financial assistance, communicate with their child, and look for alternative funding sources. By taking these steps, parents can help alleviate the burden of Parent PLUS loans and achieve financial stability.
