Three Easy Options to Get Parent PLUS Loans Under Control in 2016
Young people who are just getting started with their career find it difficult to deal with the often massive student loans that they’ve accumulated. Students, however, aren’t the only people affected by debt. Quite often, their parents face an even more serious situation.
Parent PLUS loans for children in university can be as difficult to repay, as the student loans that young individuals take out themselves. Statistics suggest that the debt accumulated through parent PLUS loans is currently at 62 billion dollars. Through the program, parents can borrow enough money to cover the cost of attendance (tuition, room and board) and extras.
The debt collection measures for such loans are quite strict and such loans are incredibly difficult to discharge through bankruptcy. Statistics also suggest that such debt is often accumulated by low-income families and as a result, parents often struggle to make the repayment.
If you’re a parent and you have to pay back a loan through the Plus program, you’ll find the following article quite beneficial. Together, we’ll outline three of the best strategies to get the loan under control in 2016 and to manage dealing with those repayments in a timely manner.
Choose Parent Plus Loan Consolidation
Individuals that have taken out a loan through the loan program may consider consolidation and refinancing as an option for having more control and even reducing the amount that will have to be paid back.
Parent Plus loans are often known for the high interest rates that they come with. The loan’s interest rate for 2015-2016 is set at 6.84 per cent. Through consolidation, another loan will be taken out and the money will be used to repay the Plus loan. As a result, you’ll have to repay only the new loan that will probably have a lower interest rate.
The problem with applying for loan consolidation is that financial institutions will examine both credit score and credit history. As already mentioned, Plus programs attract many low-income families that aren’t in a good financial standing. Thus, applying for a new loan may be a relatively difficult task.
Most banks that refinance Plus loans will be satisfied if they see a steady income. The interest rate and the duration of the loan will both have to be examined. A borrowing product that seems lucrative initially could prove to be quite financially burdening.
Income Contingent Repayment Plans
The second possibility involves the selection of an income contingent Parent Plus repayment plan. This is possible if the Plus plan has been included in a Federal Direct consolidation loan. Through this program, the repayments are capped at 20 per cent of the borrower’s income.
The biggest benefit is that the monthly payments will become lower and loan forgiveness options will also become available. These will typically come as an opportunity after 25 years of making loan repayments.
Applying for this repayment plan may be a bit of a lengthy process but the benefits and the cost reduction justify the procedural burden. There’s another important shortcoming to keep in mind – the interest rate is likely to increase, regardless of the fact that the monthly payments will go down.
Standard Loan Repayment
The third and final option is the easiest one to understand. All of the parents that have a plus loan will be enrolled in the standard loan repayment program. If you have the income and you’re capable of making timely monthly payments, you’ll get to have the entire loan repaid in a period of 10 years.
For many parents, this is the option that will make the most financial sense. As already mentioned, interest rate changes and loan duration modifications apply in both of the above strategies. Thus, doing financial planning will become a bit more challenging.
The standard repayment program keeps the overall cost of the loan down because interest will accumulate solely for a 10-year period. The monthly installments, however, will be higher than in the other cases. If you don’t have a stable income, you’ll probably find this debt management strategy to be the least attractive one.
If you have no idea how to keep Parent Plus debt under control, you may consider talking to a financial consultant. This professional will outline the possibilities and present both pros and cons in an easy to understand manner. Together, you’ll assess your current income level and the strategy for keeping debt under control that will make the most sense.