02.28.11 | Choosing a Student Loan: Parent PLUS vs Private

Posted in Financial Aid, PLUS Loans, Private Student Loans, Student Loans by Student Loan Network Staff

Deciding on which student loan to apply for can be a headache for both parents and students. With so many aspects to consider, such as repayment plans, interest rates, and loan benefits, deciding on the best loan for you can be both confusing and difficult.

If a student is not eligible for federal loans, or is already taking the maximum, there are other loan options to consider. There is a variety of private student loans to choose from, or you and your parents may consider a Parent PLUS loan. However, these loans have some important differences to be aware of.

The most important aspect when choosing between a parent PLUS loan and a private loan is the borrower. A parent PLUS loan is taken out in the parent’s name and the responsibility legally rests on the parent to repay it. A student and parent can have an agreement where the student pays the loan, but remember, if it were to go into default, it is under the parent’s name not the student’s and is therefore the parent’s responsibility. Private loans, however, will be taken out in the student’s name and all repayment responsibility falls upon the student.

Another important difference to consider is financial disclosure. Private student loans do not require any parent or student information like which you would put on your FAFSA. On the other hand, Parent PLUS Loans require you to file a FAFSA which means you will have to provide financial information.

There are a number of other options to consider when deciding on a loan. Visit StudentLoans.com for more information on this differences between Private Student Loans vs Parent PLUS Loans.

03.23.10 | My parents make too much! How can I get a federal loan?

Posted in PLUS Loans, Stafford Loan by Student Loan Network Staff

One question we get asked frequently from students in our financial aid forums is what to do when their parents’ income makes them ineligible for a federal Stafford loan. Many people are surprised to learn that if your parents make around $50,000 or more, or have particularly strong savings, they might earn too much to receive the need-based subsidized Stafford loans.

Fortunately, there are still a couple of federal-based options you can look into.

1. Unsubsidized Stafford loans. Among the best options for a non-need based loan, an unsubsidized loan from the government can go a long way in covering some of your tuition. One downside is the interest begins to accrue immediately upon disbursement.

2. Parent PLUS loans. PLUS loans (Parent Loans for Undergraduate Students) are loans are taken out by the parent in his or her name. The payments on these loans start right away and are not deferred if the child is still in school. These are a good way for a parent to still have a large say in the payment of their child’s education.

You also have the option to take out a private student loan. Like a subsidized Stafford loan, these loans needn’t be repaid until after graduation. Private student loans are, however, based on credit, not need.

ScholarshipPoints code: PARENT0310

03.11.10 | Parent PLUS loans and divorce

Posted in PLUS Loans by Student Loan Network Staff

If you’re an estranged parent or the child of divorce, you might be wondering which parent is responsible in certain student loan situations. Here is a brief overview.

Parent PLUS loans: Only one parent may apply for a Parent PLUS loan. The parent must (1) live with the child who will be using the loan; (2) claim the child as a dependent on taxes; and (3) support them more than 50%. This loan may not be transferred at any time and is the sole responsibility of the parent who applies.

Private Student loan cosigning: Either parent may elect to cosign for a student loan. The parent must have good credit and be responsible to pay in the event the student defaults following their post-graduation grace period.

Student loan consolidation: Only the parent who takes out the Parent PLUS loan may consolidate. If both parents co-signed for separate private loans for a child, an individual parent may only consolidate the loan(s) for which he or she co-signed.

03.11.10 | Three Private Student Loan problems – and how to solve them

Posted in Private Student Loans by Student Loan Network Staff

We get a boatload of questions daily in our Financial Aid forums concerning private student loans. While such a loan can help you close the gap between your federal loan allowance and your total cost of education, there may be some concerns. Here are a sampling of questions found in our forums and some ways to answer them.

1. “My parents don’t want ANOTHER loan hanging over their heads.” – As you may have heard, the U.S. economy hasn’t exactly been great last couple of years. Virtually no outside lender will approve you for a private student loan without a cosigner. But Mom and Dad, already burdened by the cost of education, might feel queasy at the thought of borrowing even more and facing a potentially damaging interest rate. One way to solve this problem is to take out a Parent PLUS loan, which has a fixed interest rate of 8.5% and the payments can be deferred until after graduation.

2. “My parents have lousy credit.” – Again, you will almost definitely need a co-signer for a private student loan these days. One trick is to ask your parents to apply for the Parent PLUS loan. If they have bad credit, they will get denied. You, however, can become eligible for up to $6,000 more per year with an unsubsidized Stafford loan. You may also seek out another trusted adult as your guardian. (Read this checklist for finding a private student loan co-signer.)

3. “I don’t know which lender to trust.” -  Sad to say, there are a LOT of shady lenders out there who would love nothing more than to sucker you into a bad loan. Always (repeat: ALWAYS) shop around and perform your due diligence before providing personal information to a lender. One great place to start is right here, with the Private Student Loan comparison tool.

ScholarshipPoints code: PSLPROBLEMS

03.01.10 | Federal Parent PLUS Loans, in Plain English

Posted in FAFSA, Financial Aid by Student Loan Network Staff

The Parent PLUS Loan, a lending option through the federal government for students, is one of the less understood and often forgotten funding methods for education.

Mother and Daughter

What is a PLUS loan? The Parent PLUS Loan is a lending program designed differently than other federal loans to cover more expenses than Stafford or Perkins loans, up to full cost of attendance. In addition, as the name implies, a parent or legal guardian is the only person that can take out this type of loan. The maximum borrowing amount is determined by the following formula:

Amount You Can Borrow = (Total Cost of Attendance) – (Awarded Federal Need-based Aid)

Essentially, the school tells the government how much it costs to go there (with reasonable margins for books, etc.) and whatever loans or grants you receive from filing your FAFSA are deducted from that total amount. Also, it is important to note that the PLUS loan is not a need-based program, so it is subject to a credit check. A PLUS loan is similar in operation to a private student loan, but has lower fixed interest (in most, but not all cases) and more generous repayment terms.

How does it work? First, there are two potential sources of Parent PLUS loans: the Direct Loan program, and the Federal Family Education Loan Program (FFEL). The major difference between the two are interest rates, fees, and who you pay back. The condensed version of the story is FFEL usually is more expensive for the student than the same product from Direct Loan.

At this point, you’re probably wondering why anyone would want to use FFEL for loans if they end up costing more (I know I did) — the answer is it isn’t a choice. Each college decides whether or not they want to be a Direct Loan or FFEL school, and the difference is often dictated through soft benefits and relationships between the school and lenders. So unfortunately, you don’t really have a choice and must go with what the school offers. That being said, there have been a lot of studies, blogs, and commentary that point toward FFEL lenders as being more forward about educating their borrowers about the real costs of education and doing everything in their power to prevent delinquencies and defaults during repayment.

The last difference between the two programs is to whom you send your checks. Direct Loan is funded and maintained by the US Department of Education, so you are directly borrowing your money from the federal government. FFEL is actually maintained by third-party lenders such as Discover Student Loans, and your money goes to them upon repayment.

What is the benefit of a PLUS Loan? A PLUS Loan can be a valuable method of bridging the gap between federal aid and total cost of attendance. More often than not, your federal award package, based on your FAFSA application, will not be sufficient to entirely cover your school expenses.

What does one cost? FFEL has a higher fixed interest rate of 8.5% for PLUS loans, where Direct Loans are currently set at 7.9% APR. Also, FFEL typically has higher fees than Direct Loans, up to 4% of the total loan amount. Like an unsubsidized Stafford loan, interest begins to capitalize or build right after the funds are sent to your school. You have the option to begin paying it off immediately, or you can postpone for either 2 months from the last disbursement, up to 6 months after the student’s graduation.

The PLUS loan is limited in some ways, because it is restricted to being taken out by a parent or legal guardian. If you are an older student, or just don’t have a solid relationship with your family, the PLUS loan just may not be the right solution. If you still need money for your education, and this type of lending is unobtainable, check out a private student loan, which is a little less restrictive, at the cost of being more expensive in the long run.

One last thing — if you are an undergraduate student, or a parent seeking one, you do not have to file a FAFSA to qualify for a Parent PLUS Loan. It is highly recommended, but not required. However, if you are a graduate student, a FAFSA is required to qualify for a PLUS loan.

ScholarshipPoints Point Code: PLUS2010

05.28.09 | What is a Preferred Lender List?

Posted in Student Loan Links by Student Loan Network Staff

By definition a preferred lender list is a list of lenders that a college suggests its students consider when taking out federally guaranteed loans. Students who receive a “preferred lender” list from a school should remember that those lists are not legally binding. Borrowers can choose from any federally approved lender and may often find a better deal outside the list.

As some of you may recall a handful of lenders were sanctioned for deceptive loan practices a couple of years ago. Among other things, they were sharing a portion of their loan revenue with the school’s financial aid office, which is a clear code of conduct violation. These financial aid officers were guiding students toward loan products that would offer them kickbacks. Fortunately for students today these unethical practices have come to a halt.

Heavy fines were levied and the Sunshine Act was born. The Sunshine Act protects students and parents from exploitation by private lenders and lenders who offer gifts to colleges as a way to secure loan business.

Keep in mind it is not a violation for a school to have a preferred lender list provided they are not reaping financial gains. So it is up to you if you are enrolled at a FFELP school. You can thumb through the schools preferred list or travel outside that list in search of your own lender to service your Stafford loan and Parent Plus loan.

As G.I.Joe once said, “Now you know. And knowing is half the battle.”

Five most recent Stafford loan help blog posts:

08.19.08 | My school won’t certify my loan, now what?

Posted in Student Loan Links by Student Loan Network Staff

If your school participates in the Federal Family Education Loan Program (FFELP) they are not permitted to refuse to certify a loan because of the lender the borrower has selected.

The law and regulations clearly prohibit institutions from refusing to certify a loan based on the borrowers choice of lender. Section 432(m)(1)(B)(ii) of the Higher Education Act of 1965, as amended (HEA). The Department’s regulations at 34 CFR 682.603(e) further provide that the limited authority under which a financial aid administrator may refuse to certify a Stafford or PLUS loan does not include the borrower’s selection of a particular lender or guaranty agency.

Furthermore, a school’s failure to comply with these requirements may result in the Department of Education imposing a fine or taking other administrative actions.

So if your FAO refuses to certify your loan based on the lender just quote the Higher Education Act of 1965. That will send chills down their quivering spine!

07.02.08 | Private Loans vs. Parent Plus Loans

Posted in FAFSA, Private Student Loans, Student Loans by Student Loan Network Staff

So, your child wants to go to that private University costing $45,000 per year and you’re wondering how on earth you’re going to pay for it.

They have worked hard thru High School, received a merit scholarship, have taken their PSAT, SAT, & ACT exams to prepare themselves and are excited about this new chapter in their young adult lives.

You on the other hand are a little less excited, and not because empty nest syndrome has set in prematurely. How am I going to pay for this you are thinking to yourself? It is the million dollar question. I just hope the million dollar question doesn’t cost me a million when my son is of age in 18 years.

Here are a few things to consider. FFELP Parent Plus loans are currently fixed at 8.5% which is really high in relation to private student loans, which many can get in the mid 6% range with good credit these days. The fed funds rate has dropped precipitously over the past several months which have spurred these lower private interest rates and has swung the pendulum in favor of private loans for many.

Both loans can be repaid after the student graduates, which are nice benefits, but you are only delaying the inevitable while interest continues to capitalize. If you can at least afford to make interest only payments while the student is in school it would certainly be in your best interest.

Another thing parents often ask me is who is responsible for the payment on these loans when the student graduates? The parent plus loan is linked to the parent’s social security number, so the parent is responsible for that one. The private student loans are generally in the students name with the parent listed as a co-signer. This would be the student’s responsibility and after 36-48 months of on-time payments you can get your named removed as a co-signer.

The parent plus loan also holds a tax benefit. You can write off the interest provided you do not earn more than $70,000 if you are single and $140,000 for joint filing. On a side note many parents with a joint income exceeding $140K are actually looking at home equity loans. Interest rates are so low on equity loans currently and they can write off the interest at the end of the year.

As you can see you have a few options, but only you know what is right for you. Happy spending.