Capstone Wealth Partners Capstone Wealth Partners
MENUMENU
  • Our Story
  • What We Do
    • Our Process
    • Services & Pricing
  • Resources
    • Blog
    • eBooks
    • Videos
    • Events
    • Advisor Resources
  • Contact
  • Schedule a Call
Capstone Wealth Partners Capstone Wealth Partners
MENUMENU
  • Our Story
  • What We Do
    • Our Process
    • Services & Pricing
  • Resources
    • Blog
    • eBooks
    • Videos
    • Events
    • Advisor Resources
  • Contact
  • Schedule a Call

6 Myths You Need to Know About Parent PLUS Loans

By Joe Messinger, CFP®

June 5, 2020

3 min READ

One of the types of federal student loans available are Parent PLUS Loans. These types of loans are meant to fill the gaps when a family does not have enough money to pay for college, and the limit on the federal direct student loans is not enough.

We want to dispel some MYTHS out there about Parent PLUS Loans to make sure parents fully understand the finer points about them.

Myth #1 – Students share responsibility for paying back Parent PLUS loans.

What parents often don’t realize is that PLUS loans are only in the parent’s name. Their child is not responsible for payment, and the PLUS loan cannot be transferred to the student. If you want your student to have a financial stake in their education, a private loan in the student’s name with parents as co-signers is the better option.

Myth #2 – Parents must show proof of income to get a PLUS Loan.

Although the government will check the parent’s credit score, they don’t have to meet any income level to qualify. In fact, parents can be unemployed and still take out a PLUS loan.

Myth #3 – Private loan interest rates will be higher than PLUS loans.

The interest rate for Parent PLUS loans in 2021/22 is 6.28%. By comparison, private loans issued by banks and credit unions can have interest rates as low as 3% for well-qualified borrowers. If a parent’s credit is strong, it is worth the time to see if a private loan has better terms.  Remember that the rate is not the only consideration when selecting a student loan.  Federally backed student loans come with several provisions that are simply not available with private loans, like the potential for loan forgiveness.

Myth #4 – The amount of the loan is based on how much parents can afford to pay.

Amazingly, the total amount a parent can borrow is only limited by the cost of attendance minus any financial aid at the student’s college. Can you imagine buying a Lamborghini when all you can really afford is a Honda?! If the remaining cost after other financial aid to attend the child’s college is $60,000 per year, parents can borrow up to the full remaining cost of attendance of $60,000.  Just because they are willing to give you the loan does not mean you can afford to pay it back.

Myth #5 – Parents don’t have to start paying their PLUS loans until after their child has graduated.

Parents will need to start making monthly payments as soon as the loan is disbursed.  However, they will gladly let the borrower defer payments until graduation, but interest will accrue from the date of the loan adding to the loan total.  Who is winning in that scenario?  Here’s a hint… it isn’t the borrower.

Myth #6 – Interest is the only charge a parent needs to pay attention to when comparing loan options.

Federal student loans also add in an administrative fee. The fee for the Parent PLUS loan is pretty steep at 4.236% for 2019/20. Loan fees are deducted proportionately from each loan disbursement. While most private student loans do not come with an administrative fee, they possibly could have higher interest rates so families must compare all the associated costs and conditions of a loan to make a good choice.

In general, when should parents use a Parent PLUS loan?

Most importantly…when the parent’s credit does not qualify them for a lower interest rate private loan.

In addition:

  • You have a small gap to cover.
  • You are comfortable being the sole person responsible for your child’s education costs. You don’t mind that your student does not have a stake in this burden.
  • Your student has maxed out their federal student loan limits.
  • Your retirement plan is well-funded and will not suffer from the additional monthly loan payments for the next ten (or more) years. OR you can accept putting off retirement a bit longer until you have saved enough.
  • You don’t have other high-interest payments hanging over your head like credit cards.

 

Joe Messinger, CFP®

Author

Joe Messinger, CFP®
Joe is a leading authority on late-stage college funding. He frequently speaks to organizations and parent groups such as BMI Credit Union, Westerville City Schools, At the Core, CollegeWire, and I Know I Can, among others. He is also a highly regarded thought leader in the financial planning community. He is frequently asked to speak at industry conferences about his College Pre-Approval™ process providing Continued Education for CPA’s and CFP® through through the FPA, XYPN, and OSCPA and has been published in the Journal for Financial Planning.

SHARE:

  • Facebook
  • Twitter
  • LinkedIn

RELATED ARTICLES

A Quick Guide To The Financial Aid Appeals Process Thumbnail

College Planning

A Quick Guide To The Financial Aid Appeals Process

Joe Messinger, CFP®

March 23, 2023

  1203 Views
Choosing a College: Weighing the Return on Education Thumbnail

College Planning

Choosing a College: Weighing the Return on Education

Joe Messinger, CFP®

March 17, 2023

  2136 Views
Why Reaching Out to a College Planning Advisor with Financial Aid Appeals is a Good Idea Thumbnail

College Planning

Why Reaching Out to a College Planning Advisor with Financial Aid Appeals is a Good Idea

Joe Messinger, CFP®

March 10, 2023

  1335 Views
Appealing the Financial Aid Award Letter Thumbnail

College Planning

Appealing the Financial Aid Award Letter

Joe Messinger, CFP®

March 3, 2023

  8517 Views
College-Money-Report

Get the Free College Money Report – customized for you – and know before you go!

Get My Report

No spam, guaranteed.
Please read our Privacy Policy.

ABOUT OUR BLOG:

Capstone Wealth Partners is a fee-only independent Registered Investment Advisor in Columbus, Ohio. We are financial planners for college-bound families

The Capstone Blog offers up our best ideas on how to save and pay for college, all while staying on track for a confident retirement.

FILTER BY CATEGORY:

  • College
  • College Planning
  • Financial Planning
  • In The News
  • Investing
  • Retirement
  • Tax Planning

FOLLOW US:

 

Capstone Wealth Management Logo

GET IN TOUCH

The Millennium
6037 Frantz Road
Suite 104
Dublin, Ohio 43017

(614) 754-7805

Book Joe to Speak

UPCOMING EVENTS

  • There are no upcoming events.

FOLLOW US

 
Client Corner
© 2023 Capstone Wealth Partners
  • Privacy Policy
  • Form ADV
  • Advisor Resources
  • Accessibility Feedback