Parents need to learn more about PLUS loans

PERSONAL FINANCE

October 21, 2008|By EILEEN AMBROSE | EILEEN AMBROSE,eileen.ambrose@baltsun.com

It's harder these days to get private loans for college, but some families are also having trouble getting a federal parent loan.

Unlike Stafford loans, where students qualify no matter their credit history, parents must pass a credit check to get a federally guaranteed Parent Loan for Undergraduate Students. And they must pass this check each year they apply for a loan.

A parent PLUS loan covers the cost of college, minus any financial aid. There are no national statistics on PLUS loan denial rates. But according to Department of Education figures, the dollar amount of parent loans for the three months ended in June was $728.5 million, down 28.7 percent from the corresponding period a year earlier.

That indicates that some parents might be having a tougher time qualifying for a loan. And indeed, some Maryland schools have reported an increase in loan denials from a year ago.

Towson University, for instance, said 229 PLUS loan applications, or 10 percent of all applications, were denied from May to mid-October, up from 7 percent last year. And Salisbury University reports 165 parent loan applications, or 12 percent, were rejected as of the end of September, a slight uptick from a year earlier.

If you are denied a PLUS loan, don't panic. Instead, consider your options.

You can, for instance, ask the lender - the private bank or the federal government for direct lending schools - to review its decision, says Margherite Powell, director of financial aid for Hood College.

There is no guarantee that the lender will reverse its earlier decision. But Dennis O'Shea, a spokesman for the Johns Hopkins University, says a couple of parents who were initially denied a PLUS loan later qualified after cleaning up their credit record.

If that doesn't work, you can still get a PLUS loan if you can find another adult with a good credit record to be an "endorser" or co-signer, says Sarah Bauder, director of financial aid at University of Maryland, College Park. That college has also seen a small rise in parent loan denials.

A word of warning for the endorser: If the parent defaults on the loan, you will have to repay it.

You can also pay for school out-of-pocket throughout the year. Schools generally have monthly payment programs that allow you to spread the cost of tuition over 10 months. You will pay an application fee for this service, but you won't have to pay any interest.

Students also can borrow additional money under the federal Stafford student loan program when a parent's PLUS application is denied. This additional loan amount is unsubsidized, meaning the student - not Uncle Sam - will pay the interest on the loan while the student is in school.

In cases where a PLUS loan is denied, a student can borrow up to $9,500 as a freshman, $10,500 as a sophomore, and $12,500 in both the junior and senior years.

Mark Kantrowitz, publisher of FinAid, expects the number of parents getting loans will improve next year.

One reason is that Congress temporarily has loosened the lending criteria for getting a PLUS loan, and these provisions only recently kicked in during the summer, Kantrowitz says. Under the new rules, you can still be considered for a loan if you are no more than 180 days late on a mortgage payment or medical bill any time between 2007 through 2009.

If you are going to apply for a PLUS loan next year, and your finances aren't in top shape, use this time to clean up your record.

Even though Congress cut some slack on late mortgages and medical bills, you can't be 90 days or more delinquent on any other debt payment to get a PLUS loan. So pay your bills on time, so you won't have any delinquencies on your record next time you apply for a loan, Kantrowitz says.

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