Can’t Afford to Pay a Parent Loan? You Might Get One Anyway.

The U.S. Department of Education issues federal parent loans — known as PLUS loans, for parents of undergraduate students — designed to help families pay for college. PLUS loans, like federal student loans, are fixed-rate college loans. They carry a slightly higher interest rate than federal student loans do and are not subsidized the way that some federal student loans are, meaning that the government won’t pick up the tab for any interest that accrues while the PLUS loans are in deferment. PLUS loan payments can be deferred until a student graduates from college, in the same way that students can defer payments on their federal student loans until they’re out of school. Since PLUS loans aren’t subsidized, though, interest will accrue from the moment the loan is issued, and then capitalize, so an increased balance awaits parents who opt to delay payments until their child has graduated. Qualifying for Parent Loans Not As Hard As One Might Think Unlike most federal student loans, federal parent loans are credit-based: Parent borrowers must meet certain credit criteria to qualify for a PLUS loan. Parents who have “adverse information” on their credit report will be turned down. Students whose parents aren’t eligible for a parent loan can qualify for up to $5,000 more in the lower-interest federal Stafford student loans. Under Department of Education rules, however, this “adverse information” means serious credit problems such as bankruptcy, a recent lien or foreclosure, or bills that are currently delinquent by more tha 90 days. Simply having a low credit score or low (or even no) income won’t eliminate you from consideration. As a result, the Department of Education can extend parent loans to applicants who would otherwise generally not qualify for other types of consumer credit or personal loans. And according to many parents and financial aid officials, therein lies the problem. College Loans Going to Unemployed and Low-Income Parents Since a parent’s income or ability to make monthly loan payments aren’t considerations under PLUS loan eligibility guidelines, the Education Department is approving parents for parent loans even in cases where the parents clearly can’t repay the loans because of unemployment or underemployment due to disability — a state of affairs recently highlighted in the national news (“Government Approves College Loans for Parents Who Can’t Afford Them”). Struggling parents who believe they won’t qualify for a PLUS loan will often apply anyway, in order to be rejected and thus make their child eligible for additional student loan money from Stafford student loans. Unfortunately, some of these parents, to their surprise, are being approved for the parent loan, suddenly saddled with a financial obligation they hadn’t planned on and monthly college loan payments they don’t have the money for. Parents who accept a PLUS loan that they can’t afford and then miss enough payments to default on the loan are subject to the same penalties that defaulters on federal student loans are — collections, seizures of any income tax refunds, and wage garnishment. As a parent, you aren’t obligated to take on the PLUS loan you’re approved for. But since you qualified for a parent loan, your children won’t be eligible for additional Stafford student loan assistance. Parents who reject a PLUS loan must then find that money somewhere else — not a simple proposition for families under financial strain. Struggling Parents Can Find Help at Financial Aid Office If you’ve been unexpectedly approved for a PLUS parent loan and the monthly payments are beyond your means, always consult with your child’s financial aid office before either accepting or rejecting the loan. Schools actually have the power to trump the federal government on PLUS loan approvals, and your child’s financial aid office can override the Department of Education’s PLUS loan offer if the financial aid officers believe that you truly cannot afford the parent loan. Unlike a parent’s refusal to accept the PLUS loan, the school’s refusal will allow a student to once again qualify for expanded student loan amounts. A rejection of the PLUS loan by the university’s financial aid office will pave the way for your child to receive additional financial aid assistance under the Stafford student loan program if you really can’t afford any parent loans. student loans, postponing payments on college loans, report: Government Approves College Loans for Parents Who Can’t Afford Them