If you’re struggling to cover the gap intuition on behalf of your kid, you’ve likely thought about getting one of the PLUS loans offered by the Federal government. Although it could appear to be a simple alternative because, in the end, it’s right on the financial aid award letter but it’s probably not the best choice. Why? because in the year 2020 you could get cheaper prices in another location.
Costs hidden in PLUS loans
There are some things to keep in mind before taking out the parent PLUS loan. One thing you should know is that loans offered to parents carry an interest rate that is higher as compared to federal loans for students. On 1 July 2020, the federal loans for students will be made available at 2.75 percent, while PLUS the loans are available at 5.3 percent.
At present, a number of private lenders are currently offering very affordable rates for fixed-rate loans and variable-rate loans which are below the federal parent rate. We’ll talk about the options in a moment.
In addition to the interest rate, however, there are some disadvantages of PLUS loans.
PLUS loans come with an origination/disbursement fee of 5.3%, which means that your loan principal will increase before your child has even begun class. Most reputable private lenders don’t charge an origination fee.
PLUS loans come with very strict requirements for repayment. If you are in default in payments, your earnings may be garnished at a percentage of 15% of available income. Social security payments could susceptible to garnishment. It’s important to know that you are not able to transfer the PLUS loan to your child in the future.
Here are a few private loans for parents that might help with financial planning.
1. Sallie Mae Parent Loan
In August 2020, Sallie Mae is currently offering parent loans beginning at 3.50 percent APR for variable-rate loans, and 5.49 APR for fixed-rate loans for borrowers who are qualified. These rates are based on the possibility of a 0.25 percent discount for making automated payments.
There aren’t any hidden charges. Sallie Mae charges no origination charges and no penalties for making a prepayment. Making sure you pay in advance every month even if it’s just the smallest amount is a very efficient method of getting out of debt quicker and saving money.
There are two payment options which include:
- You can make interest-only payments in the beginning of 48 months of your loan, while your child attends school.
- Paying full-time (interest as well as principal) when your child is at school so that you can pay off debt quicker.
2. College Ave Parent Loan
College Ave has made a reputation for being a pioneer in the field of student loans in the last few years. In addition to offering affordable rates, it also allows borrowers to choose between eleven different options to ensure that repayment is uncomplicated.
A particularly cool option is: College Ave allows parents the possibility of having a part of the loan repaid directly to them rather than the student. So parents can be sure that the money will go to legitimate schools and expenses for living.
In August 2020, College Ave Parent Loans are available at initial rates of 1.24 APR for loans with variable rates and 3.59 percent APR for fixed-rate loans. (Rates include auto-pay discounts of 0.25 percent.)
College Ave charges no charges for prepayment or origination. Choose from payment plans that are focused on an easier monthly payment or savings on costs for the course that the loan.
3. Citizens Bank Parent Loan
Similar to College Ave and Sallie Mae, Citizens charges no fees for parent loans, and also offers discounts on autopay of 0.25 percent. But, Citizens provides a loyalty bonus of 0.25 percent for existing customers. A reduction in the interest of 0.50 percent is significant and certainly worth your consideration.
Citizens also provide the ease of multi-year approval. This lets applicants apply for a single loan to extend their loan every school year. Apart from being practical, it will also stop further credit inquiries that could lower your credit score.
As of August 20, 2020, Citizens is offering parent loans starting at 2.16 APR for variable-rate loans, and 4.69 APR for fixed-rate loans. (Those rates include both the loyalty and auto-pay discounts mentioned earlier.)
Not sure if a parental loan is a right choice for you? Look through our list of the most competitive individual student loans which your child is able to apply for, either with or without cosigners.