PLUS Loans
Parents of undergraduate students can help to enhance
their children's loan and student aid packages with a
federal Parent Loan to Undergraduate Students, or PLUS
loan. PLUS loans carry a fixed interest rate of 8.5%.
The credit check standards for
PLUS loans are less
rigorous than those for private student loans, and
parents can borrow up to the full cost of college in
PLUS loans.
Parents are becoming more and more hesitant to borrow
money for their children's education. The amount of
money borrowed from the PLUS program over the past
decade has risen at a far slower rate than the amount of
money borrowed from private lenders.
More parents want their children to take charge of their
educations and be liable for their
college costs and
fees. Parents of college-age children are often trying
to balance planning for retirement with their desire to
help their children with education costs. They are more
likely to co-sign a private loan taken out in the
student's name then to take out a PLUS loan in their own
name.
Co-signing generally provides a more favorable interest
rate for student borrowers, but it still doesn't get
parents off the hook. If the student can't make payments
on their private student loans, the parents who co-sign
are responsible for paying them.
Because current interest rates are relatively low, rates
on many co-signed private loans are lower than PLUS loan
rates. Some borrowers might not realize that private
student loans are like adjustable-rate
mortgages: If
interest rates rise, the rates on their loans will go
up, too. In that way, a PLUS loan is more beneficial
than a private student loan.