My son has been accepted to an expensive private non-profit college
for the fall. We have been awarded a pretty generous financial aid
package from the school (approximately $30,000) which leaves me with
about $20,000/year left to finance. I make about $50,000/year. I will
be applying for the Parent PLUS loan and have several questions. I'm
in the process of refinancing my home and know that my credit score is
748. I have done a lot of research on this loan and I guess I'm just
looking for reassurance. My biggest fear is that when it comes time to
apply, I will not be approved or something will stand in our way. I
believe my credit shouldn't be a problem, but my income is not very
high. Over the course of four years and approximately $20,000 in loans
each year, would this be a problem in getting approved, due to the
high debt to income ratio? Also, the loan can be deferred until after
my son graduates, correct? Can I be put on a repayment plan that is
income based? I know we will be paying this loan for a long time (25
years or so), but was hoping that there is some leniency in the way
the loan is repaid. Any information you can provide will be greatly
appreciated. Thank You!
— Robert B.
The Federal Parent PLUS loan can be deferred while the student is in
school on at least a half-time basis and for six months after the
student graduates or drops below half-time enrollment. The interest
will be added to the loan balance if it is not paid as it
accrues. This can increase the loan balance by about a fifth.
Eligibility for the Federal PLUS loan does not depend on the borrower's credit
scores. Eligibility also does not depend on income, debt-to-income
ratios or debt-service-to-income ratios. The eligibility criteria also
do not consider whether the borrower owes other types of debt.
A Federal PLUS loan borrower must not have an adverse credit history
which is defined in the regulations as involving a current delinquency
of 90 or more days on any debt or a five-year lookback for certain
derogatory events, such as bankruptcy discharge, foreclosure,
repossession, tax lien, wage garnishment or a default determination.
Even if a parent has been denied a Federal PLUS loan because of an
adverse credit history, it may still be possible to get a Federal PLUS
loan. If the denial was due solely to a 90-day delinquency, the parent
can make payments to bring the delinquent account current and then
reapply for the Federal PLUS loan. The parent can appeal the Federal
PLUS loan denial based on extenuating circumstances. The parent can
also get approved if a creditworthy endorser agrees to cosign the
loan. If one parent has an adverse credit history and the other does
not, the parent with good credit can apply for the Federal Parent PLUS
If the parent has been denied a Federal Parent PLUS loan, the student may be
eligible for an additional $4,000 or $5,000 per year in unsubsidized
Stafford loans, depending on the year in school.
But just because you can borrow all the remaining costs doesn't mean
you should. Repaying $80,000 in Federal Parent PLUS loans on a $50,000 annual
income will be difficult. The monthly payments will represent almost a
quarter (23%) of gross income on a 10-year repayment term, 16% on a
20-year term and 14% on a 30-year term. Anything over 10% will be a
struggle, and 15% is the stretch limit for most people. These
correspond to about $34,500 and $51,750, respectively, on an annual
income of $50,000 and a 10-year repayment plan.
Parents should not borrow more than they can afford to repay in 10
years or by the time you retire, whichever comes first. For most
parents this means borrowing no more than the parent's annual income
and ideally a lot less. Parents should also not count on the child
being able to help them repay the Federal Parent PLUS loans. The total
student loan debt at graduation, including any Federal PLUS loans the
parent expects the student to repay, should be no more than the
student's expected annual starting salary.
Federal Parent PLUS loans are not eligible for the income-based
repayment or pay-as-you-earn repayment plans. Federal consolidation
loans that repaid a Federal Parent PLUS loan are also not eligible for
the income-based repayment or pay-as-you-earn repayment plans.
(Federal student loans, including the Federal Stafford and Federal
Grad PLUS loans, are eligible for income-based repayment and
Federal Parent PLUS loans are not directly eligible for
income-contingent repayment, a less-generous predecessor of
income-based repayment. However, if the Federal Parent PLUS loans were
made since July 1, 2006 and have been consolidated into a Federal
Direct Consolidation Loan, the consolidation loan is eligible for
income-contingent repayment, per the regulations at 34 CFR 685.208(a)(2)(iii).