Beware This Wolf In Sheep’s Clothing: Debunking Parent PLUS Loans

October 12, 2012

They may seem like the answer to bridging the gap between where your financial aid leaves off and your tuition begins, but Parent PLUS loans have the potential to be seriously damaging to students and families. In a nutshell, what makes these loans so dangerous is that they are ludicrously easy to procure and equally difficult to payoff. The intention was to make higher education available to every student by helping students cover the cost of their tuition where other financial aid options have fallen short. The problem is that borrowers are required to show surprisingly little evidence of their ability to repay Parent PLUS loans before they are awarded. The result is that many borrowers end up with loans they have no hope of repaying.

The Temptation and The Reality

Parent PLUS loans are pretty much what they sound like; they are loans that your parents can take out for you in order to fill in the gaps in your financial aid package. On first glance they can seem like a pretty appetizing solution, especially when they are actually included by schools within financial aid packages, as they often are. Except unlike the rest of that package, which includes things such as federal grant money and federal direct student loans, Parent PLUS loans carry very high interest rates and are ineligible for many of the more generous loan repayment plans like Income-Based Repayment.

Borrower’s Ability To Repay Is Unchecked

Some parents who have considered Parent PLUS have been shocked to discover that the application and approval process is just about on par with getting a Netflix account. It’s necessary to pass a credit check in order to be approved; however the approval process does not take into account the borrower’s income, employment status and other outstanding debt, things without which it’s impossible to assess the borrower’s ability to repay the loan.

Why Do Schools Push Parent PLUS?

Many students look at their financial aid packages and see that between student loans, Parent PLUS and grants their college tuition is 100% paid for. It isn’t until digging into the fine print that students will discover the problematic nature of Parent PLUS loans. So why are colleges still so willing to push these loans on unsuspecting students and their families? And why do they often make financial aid packages so misleading? A lot of schools are throwing their hands in the air and claiming, “not my problem:” their job is to pack students into the classroom. Others argue that without knowing which families can reasonably afford Parent PLUS loans, it’s best to include them as an option so as not to discourage students whose families can affordably make the payments.

Planning to repay the loans themselves, many students encourage their parents to borrow with Parent PLUS; the problem is that when the student can’t pay up, the burden falls on the parent. The best way to get yourself out of this kind of mess is to get your loans managed and under control, enabling you to help your parents out of their debt for your education. This is not an easy territory to navigate on your own; fortunately there are student loan experts out there who can help.