Managing Student Loans

When a student first embarks on college life it is going to be a huge expense. Typically the student is going to take on a large amount of debt which will need repaying when college days are over, and the burden can seem overwhelming to a youngster. This is where parents can play a part if they choose, by utilizing a Federal Direct Parent Aid PLUS loan.

Unless extremely wealthy and able to fund the student through college, the parents can assist with the costs of college once other avenues have been exhausted. The student should first seek out any scholarships or grants they are eligible for, followed by an application for a Federal Stafford loan, which is a loan subsidized by the Federal Government. This loan is paid directly to the college administration to cover tuition costs, accommodation and board, plus any additional school charges. This is a loan granted to the student and they take responsibility to repay it later.

If there is still a shortfall in funds needed, after scholarships and Stafford have been taken into account, the student then has two main choices. One is a private student loan, and the other is a parental loan. Many parents who are able to afford the repayments will look at this second alternative rather than burden the student with too many first time loans. It is not possible to transfer this loan later to the student.

A PLUS loan is guaranteed by the Federal government and is capped at a certain set interest rate. One loan will not cover all the years of schooling but must be reapplied for each academic year, so typically a parent will eventually have four PLUS loans, or one consolidated one.

The loan is not needs based, and can only be used to cover the shortfall from other sources. As it is not needs based the only requirement is that the parent has a clean credit history. The parent also has a choice of repayment schedules, either starting whilst the student is in college or deferring the payments until later. Interest will accrue on the loan though from the time it is dispersed to the school, so even if the balance is deferred the parent can pay the monthly interest from the beginning. The parent then has ten years in which to repay the loan.

There are certain conditions which must be met in order for a PLUS loan to be given. The parent must be a biological parent or adoptive one; other relatives cannot take out a PLUS loan. The student must be under 24 years of age, unmarried, with no dependents. These are not difficult conditions to comply with. If the parent fails to pass credit approval then the loan can still be advanced if someone else, other than the student, endorses the loan by co-signing it, but naturally they will need to be credit approved themselves.

The FDPA Plus loan enables you to assist with the necessary costs of your child completing a college education by helping with any shortfall in scholarships and other loans. It is designed to assist with the essential costs of tuition and housing, not to fund the student’s social life, and as the funds will go directly to the school you can be confident it is being used as you intend. It is an eminently sensible route for any parent to take who is confident that they can afford to take on such a loan without incurring financial hardship for themselves.