Parent Plus loans are a type of supplemental loan that parent borrowers can take out for their children’s education. Contrary to popular belief, this is not a “cosigned” loan and is solely in the name of the parent only. While Parent Plus loans can be easier to qualify for than a private loan, they have a lot of drawbacks.
It’s good to be aware of these issues with Parent Plus loans before signing the paperwork for them, because they can be a long term burden.
Here are the top 10 “minuses” of Parent Plus loans:
1. Parent Plus loans have a large origination fee which is added to the loan balance (over 3% of the loan amount)
2. Parent Plus loans are not eligible for IBR or PAYE, and are only eligible for ICR after going through DIrect Consolidation
3. Parent Plus are non-transferrable to the child of the parent borrower
4. Parent Plus loans, like other federal loans, are not dischargeable in bankruptcy in the vast majority of cases.
5. Parent Plus borrowers who took out loans before June 2006 are not eligible for ICR even after going through Direct Consolidation in most cases.
6. Parent Plus loans can be originated without borrowers being fully aware of the limitations involved in repayment.
7. Parent Plus Loans require a creditworthy borrower unlike most other federal loans.
8. Many loan servicers do not recommend Direct Consolidation because they can “lose” the chance to service the account, so many Parent Plus borrowers are just put on forbearance instead of being able to apply for payments based on taxable income.
9. Parent Plus loans can cause financial disagreements between parents and their young adult children.
10. Parent Plus loans, like other federal loans, can be repaid through offset of tax returns and garnishment of Social Security benefits when an account goes into default at 270 days past due.
