"If you thought Gucci and Prada were expensive, try getting a college degree. According to the Education Data Initiative, the average U.S. student pays $35,720 a year for their college education. While most students are eligible for some form of aid, income and savings still play an important role in covering the majority of academic costs," moneyunder30.com reports. 

..."What to consider before applying for a Parent PLUS loan

Megan Walter, a policy analyst at the National Association of Student Financial Aid Administrators (NASFAA) says that PLUS loans can be a good alternative to taking out private loans, primarily because of all of the protections that PLUS loan borrowers receive.

Some of these include being able to put the loans in deferment or forbearance if they’re in financial trouble, and being eligible for Public Service Loan Forgiveness if they work for a qualifying employer.

However, they also come with some drawbacks that are worth considering.

There’s an origination fee

An origination fee is a percentage that the lender charges from your total loan amount to process your loan.

All federal Direct loans charge an origination fee. However, PLUS loans have an origination fee of 4.2%, which is four times more than what you’re charged for Direct Subsidized and Direct Unsubsidized federal loans.

Walter says that means that if you filled out an application to borrow a $10,000 PLUS loan, you’ll only receive $9,577.20 of that amount.

If you happen to need the whole $10,000, that means you’ll need to borrow more than originally intended to cover the loan fee, without coming up short.

Your parents could pay more in interest

Although PLUS loans do require your parents to pass a credit check in order to be approved for the loan, the interest rate is the same for everyone, regardless of how good their credit is. This is because interest rates for federal loans are set by Congress.

'If you are a borrower or cosigner with an excellent credit score, you may be able to get a private student loan at a much lower interest rate than what the PLUS loan program offers, which can save thousands in interest paid at the end of the loan’s life,' Walter says.

So, if your parents have excellent credit, it wouldn’t hurt to compare rates from a private lender or two, to ensure they’re getting the best deal possible."

NASFAA's "Notable Headlines" section highlights media coverage of financial aid to help members stay up to date with the latest news. Articles included under the notable headlines section are not written by NASFAA, but rather by external sources. Inclusion in Today's News does not imply endorsement of the material or guarantee the accuracy of information presented.

Publication Date: 2/1/2022