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Read this before you take out a Parent PLUS loan

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Replies to: Read this before you take out a Parent PLUS loan

  • gratefulmamagratefulmama Registered User Posts: 186 Junior Member
    From what I understand: HELOC usually have a variable interest rate with a ballon payment at the end. PP loans are fixed interest rate loans but have a orientation fee. PP loans have a death forgiveness clause (if the student or parent dies), HELOCs do not.
  • calmomcalmom Registered User Posts: 18,367 Senior Member
    Also, PLUS loans do not require income qualification - just good credit; and no prepayment penalty.



  • twoinanddonetwoinanddone Registered User Posts: 12,224 Senior Member
    A HELOC could have a much lower interest rate as it is secured. HELOCs rarely have prepayment penalties, but when comparing you should compare all the fees and charges. Recording fees, origination fees, application fee, appraisals? The PP has a 5% fee, but the HELOC could have a lot of little fees that add up to 5%.
  • BarbalotBarbalot Registered User Posts: 366 Member
    edited April 4
    I have a HELOC that I'm holding in reserve once I run out of what I've saved for D's college. I think just about all HELOCs have adjustable rates, tied to the prime rate, which until the last year hadn't been going up. My rate now is 3.49 percent. I had no closing costs as long I keep it open for at least three years.

    The way mine works is I can borrow (you set a certain maximum amount when you open the HELOC) for 10 years and then have 10 years to pay it back. For the first 10 years you must at least make the interest payments each month. You can also start paying down the loan anytime. I have a $50 annual fee.

    You can deduct the interest as mortgage interest on your taxes, which is an advantage. The main disadvantage I see is that, as @gratefulmama noted there is no death forgiveness. You also have to have a fair amount of equity in your house to be approved.
  • fleishmo6fleishmo6 Registered User Posts: 427 Member
    edited April 4
    @TampaGirl21 , @twoinanddone , Upon graduation and getting your job, you can combine parent plus loans with yours and totally take them all over in your own name. Not all banks/companies will do so but it can be done.SOFI, will do it if your new job salary qualifies.My son just did it with us. Now we will help as much as possible but with three other children you can only do so much.
    Obviously,twoinanddone is correct, the least amount of loans is always best and her repayments are right on.Those along with law school debt will put you in a tough spot
  • twoinanddonetwoinanddone Registered User Posts: 12,224 Senior Member
    @fleishmo6 , you may be able to combine the Plus loan with other student loans at a private lender like SoFi (and they will only take the most qualified grads, who have jobs) but you cannot combine a Parent Plus loan with a student loan on a government refinance program. If you do private refinancing, it means you'll lose all the government loan perks like income based repayment plans, forgiveness on death of student or parent, maybe a low interest rate.

    One reason to pay the origination fee of 5% for the Plus loan is to get the benefits. You refinanced to change the liability, but that may have cost you (and your son) some benefits or some actual cash.
  • gratefulmamagratefulmama Registered User Posts: 186 Junior Member
    Hate to ask this morbid question, but does anyone know the details about the death forgiveness if married? Is the loan forgiven if either parent dies, if one parent is still living? Or does the living parent resume responsibility? The language says if "student or parent" (singular) dies but that is not how debit works when married.
  • SyrAlumSyrAlum Registered User Posts: 434 Member
    If the borrower dies, the loan is forgiven. If the borrower's spouse dies, the loan is not forgiven. This is, imho, a good reason for splitting the loans between spouses. Unfortunately, I have a good friend in this situation. Because she misunderstood how the parent loans worked, she took out plus loans for all for years of her son's education in her name only, none in her husband's. Shortly before their son's graduation, her husband was diagnosed with stage 4 cancer and passed away about 6 months later. Now, she is in the terrible position of having to pay back those loans on just her salary.
  • gratefulmamagratefulmama Registered User Posts: 186 Junior Member
    @SyrAlum - Thank you! I think I am the only one that signed the FAFSA, so don't know if we will be able to split the loans or not. Definitely something to consider. I'm truly sorry for your friend, that's horrible!
  • kgos16kgos16 Registered User Posts: 862 Member
    @gratefulmama Even if you are the only one that signed the FAFSA (only one parent is required to sign) either parent can borrow a PLUS loan, or you both could borrow (one parent for fall, the other for spring, etc.). Any parent who applies for a PLUS loan will need an FSA ID and password to complete the application.
  • gratefulmamagratefulmama Registered User Posts: 186 Junior Member
    @kgos16 - Very helpful! Thank you!
  • PheebersPheebers Registered User Posts: 510 Member
    We did a HELOC -- and it's worked out beautifully for us. Our income fluctuates throughout the year, so it's been a cash flow management thing more than anything else. The interest rate is less than 4%, we had almost no fees, and we can draw exactly what we need when we need it. You do have to have the equity and do a mound of paperwork.
  • WISdad23WISdad23 Registered User Posts: 729 Member
    Long thread and I have not read it all. But I found the article informative but biased in that somehow the PLUS loan program (or colleges that utilize it) are predatory and that the parents/students are innocent victims.

    The author seems shocked that someone who borrows $150,000 for his children has to work longer than he would otherwise work without the borrowing. Who else does the author think should be working to pay for those loans? The same people complaining about too free access to credit would also complain about "discrimination" if PLUS loans were means tested. Of course these are government loans because no private entity would be crazy enough to write these loans.

    And what about these knucklehead parents? At some point there is a stupid tax. And at 7.5% it is much less than the 12% paid on my PLUS loans. To think that a pharmacist cannot figure out a financial aid package and is somehow a victim of PLUS loans is absurd. And that the same guy did it three kids in a row? And even more bizarre that one of those kids is considering grad school? How about a job? The sense of entitlement in these articles is breathtaking.
  • colorado_momcolorado_mom Registered User Posts: 8,258 Senior Member
    @TampaGirl21 , - Please do more homework about the loan situation. It you take out @23K/year (plus $5500+) student loan.... you will probably be overwhelmed by debt (if you even qualify for more loans) at law school. And if you don't get into law school, I'm not sure a pre-law major will yield a job capable of such high student loan payments.
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