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Federal direct parent plus loans for credit worthy parents

February 24,2011 by: Dallas Browne

Credit worthy parents of dependent undergraduate students can avail Federal Direct Parent PLUS Loans to meet the rising educational cost of heir children. The Federal direct parent plus loan program can provide a loan amount that equates the total estimated cost of attendance minus all the other financial benefits that he might be getting. The ward of the parent needs to remain enrolled at least half the time in degree program and should also be able to show satisfactory academic progress to avail this loan.

The federal direct plus loans get their fund from the U.S. Department of Education directly. Parents no longer have to look for a lender to borrow with the help of this program. Private lenders are not entitled to make any offers on this program of parent loan and so any such offer should be reported to the concerned authorities immediately. Catholic University participates in the Direct Lending Program. Since Catholic University is a Federal Direct Lending institution, the applicant cannot take the services of a private lender to apply for a Federal plus loan. These loans are not need based and parents do not have to prove their financial condition to avail this loan program. However, the Federal direct parent plus loan is a credit-based loan and so the U.S. Department of Education will perform a credit check on the applicant to ascertain the loan credibility of the parent.

Charges associated with the loan amount

  1. The interest fee charged on the loan amount remains fixed to 7.9 percent and starts as soon as the loan gets disbursed till its completion.
  2. A loan originating fee of 0.4 percent of the principal of federal direct loan amount is charged . The department of education of the U.S government deducts the charge before the loan amount gets disbursed. This is the reason why the loan amount disbursed is less than the actual amount that got sanctioned and borrowed and can be a matter of concern for the parents. However, Federal Direct Loan borrowers receive the benefit of an upfront rebate of 1.5% at the time of origination. This discount is based on the belief that the applicant will pay the repayment installments for the first twelve months regularly and without any fault. Therefore, the amount that finally gets deducted from the gross amount of the loan borrowed is 2.5% and not four percent. If the borrower defaults in the timely repayment of the loans in the first twelve months then the rebate of 1.5 percent gets revoked and the loan amount is again calculated on the basis of the original originating rate of four percent.

Limitations of federal direct parent plus loans

  1. These loans are federally regulated and therefore no outside or private lenders can interfere in its processing.
  2. The interest rates remain fixed even if the loans given by private organizations lower their interest rates.
  3. The loan amount that gets disbursed is not the same as that gets sanctioned.
  4. These loans may not be able to completely fulfill the child’s financial requirements.
  5. The loan gets granted only after the student has enrolled and completed half of the semester.

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