Student loans: more may not be the PLUS you think.

Part of being a parent is wanting to protect your children from things that might harm them, including a heavy student debt burden. This is why many parents turn to the federal parent Direct PLUS Loan Program. These loans put the burden of payment squarely on the parent.

 

PLUS borrowing has grown from a little-used option to account for 10 percent of all federal student loans issued in 2014. The average amount borrowed per student under this program increased from $8,900 in 1989–1990 to $27,700 in 2011–2012 on an inflation-adjusted basis.

 

On the plus side.

PLUS loans were intended to address the funding gap left between the cost of college and the amount of all other aid offered. As a result, they were designed to be easy to qualify for, and there are no limits placed on the amount that can be borrowed. Theoretically, they can be used to finance each child’s entire education expense.

 

The negative side.

While PLUS loans enable more parents to say “yes” to their children’s first choice, they come with a catch. Approval of these loans does not incorporate any evaluation of their affordability for the family.

PLUS loans have higher rates than other programs, and interest on these loans starts accruing 60 days after disbursement, though principal payments are deferred until graduation. This can lead to a much larger loan balance by the time repayment begins.

 

The reality.

Students can borrow more cheaply and with better terms in their own names through other federal programs. This is why it is typically a better financial move for students to borrow the maximum amount they can in federal student loans and have their parents help them with the payments when repayment begins after graduation.

Student loans also face more flexible repayment options, including the opportunity for reduction or forgiveness through teacher or public service programs. For parents, however, even bankruptcy will not protect them from PLUS loan repayment…only death.

Before applying for a PLUS loan, talk through your family’s funding options with an NFCC® Certified Consumer Credit Counselor. They may be able to help you structure a cheaper plan at a lower rate with repayment levels that are far more budget friendly.

Who is the NFCC?

Founded in 1951, the National Foundation for Credit Counseling® (NFCC®) is the nation's first and largest nonprofit dedicated to improving people's financial well-being.

NFCC members help millions of consumers like you through community-based offices located in all 50 states and Puerto Rico. Each NFCC member agency has earned our seal by adhering to high standards and ethical practices designed to help you achieve financial stability.

Funding for operations and services comes from an ever-changing combination of federal, state and local government grants, as well as donations from financial industry participants and private donors.

For more on the NFCC, visit www.NFCC.org

Thank you to our funders.

The Sharpen Your Financial Focus program is an initiative of the National Foundation for Credit Counseling (NFCC) in partnership with a broad cross-section of supporters. Together, we are committed to increasing the financial well-being of Americans. This initiative is partially funded by Bank of America, Chase, Synchrony, Wells Fargo and other major financial institutions. We thank all funders and partners who make this program possible. For more information, visit www.SharpenToday.org.

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For NFCC Media Inquiries:
Bruce McClary
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Email: bmcclary@nfcc.org