What Are the Pros and Cons of Parent PLUS Loans?

I've been exploring different ways to fund my college education, and I came across Parent PLUS Loans. I know they're government loans that my parents would take out on my behalf, but I'm curious to know more about the advantages and disadvantages. Are they a good choice compared to other loan options, like private loans? Any insights from those who have navigated this or are considering it would be greatly appreciated!

Sure, happy to provide some insights on this. Let's start with the pros of Parent PLUS Loans:

1. Fixed Interest Rate: Unlike some private loans with variable rates, the Parent PLUS Loan comes with a fixed interest rate, which means it won't change over the life of the loan.

2. Options for Deferment: Parent PLUS Loans allow for deferment while the student is in school at least part-time and for an additional six months after the student graduates, leaves school, or drops below part-time enrollment.

3. Loan Forgiveness: Under certain circumstances, such as working in a public service job for a certain number of years, some or all of the loan may be forgiven.

4. No Hard Credit Check: While the Parent PLUS Loans do require a credit check, it is less rigorous compared to private loans. Generally, only significant adverse credit history such as bankruptcy or foreclosure will result in denial.

Moving on to the cons:

1. High Interest Rate: While the interest rate is fixed with Parent PLUS Loans, it's typically higher than the rates for Direct Subsidized and Unsubsidized Loans that students can take out in their names.

2. Origination Fees: These loans come with an origination fee which is a percentage of the total loan amount. This is significantly higher compared to private loans that often have no origination fees.

3. Responsibility of Repayment: Since the loan is in your parent's name, they're obligated to pay it back. This can be a considerable financial burden, especially if retirement is nearing.

4. Not Based on Ability to Pay: The amount you can borrow isn't based on your income or financial situation, meaning that it might be possible to borrow more than you can realistically afford to repay.

In comparison, private loans can offer competitive interest rates if the borrower has a good credit history. However, they might come with variable rates, which add uncertainty to the repayment. They also often lack the benefits of federal loans such as deferment, income-based repayment plans, and potential loan forgiveness.

It's always a great idea to exhaust other sources of financial aid like scholarships, grants, and work-study before considering any forms of loans. If loans become a necessity, be sure to weigh all the options and their implications carefully. It might be helpful to discuss this with a financial advisor!