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Common types of parent loans and their features

March 28,2011 by: Dallas Browne

There are several types of parent loans commonly on offer for those parents who are looking for financial assistance for their children’s education. One of the most popular ones is the PLUS loan which is the federal Parent Loan for Undergraduate Students.

PLUS loans and their features

PLUS loans are usually the parents’ responsibility and not the students’, if the latter do not make the payments on time. The PLUS loans are usually preferred if the financial aid provided by the government and the scholarships alone aren’t really sufficient. The PLUS loans are usually offered at very low rates of interest, which are under 8%. This is a difference from the earlier convention where PLUS loan interest rates were based on the T-bill rates and could touch a maximum rate of 9%. The processing of the PLUS loans is usually very quick with the availability of funds made within 30 days.

The basic eligibility to get these loans for students is that they should be enrolled for at least half of the time in the certificate program or undergraduate degree at any approved school. Credit history is checked for eligibility as well. Generally there is a grace period of 60 days after the entire disbursement of the loan amount. Interestingly there are other benefits such as flexible payment options and the availability of larger sums of money. Usually the repayments are not subsidized which means one has to pay the amount in full without any real discounts.

Stafford loans

PLUS loans aren’t the only option available for parents. They can also apply for the Stafford loans, which usually have a lower interest rate than the PLUS loans. That is why it is usually advisable for parents to go for Stafford loans first before they can apply for PLUS loans. The latter would cover for the difference anyway, without any upper limit or restriction. Although more than 25% of parents did not take full advantage of the Stafford loans, it is to be noted, that the lower interest rate with these loans turns out to be a massive saving in the long run. The good part is that eligibility for these loans is irrespective of the financial status of parents which means anyone can apply for these loans. In such a scenario, it is only imperative that one should finish the amount available under Stafford Loans before going for the PLUS loans.

Recent changes

A lot of things have changed in recent times and the recent Direct Loan Program is what is used to provide all the federal loans. Usually the loans are handed out through the financial aid office of the college. The PLUS loan amount is calculated by taking into account the total requirement minus the financial aid available for the student. Initially, the loans are provided for the tuition and the fees. Following that, the remaining amount is disbursed for boarding, accommodation, books and other costs related to college with the permission of the parents, who are responsible for the payment.

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