No offense @austinmshauri but the only qualification is no adverse credit. Parent doesn’t need assets, a job, or a viable chance to pay it off. Unless she stops paying her bills on time all of the sudden, there is no reason to think she won’t continue to qualify. And sure it’s a terrible plan, but OP wasn’t asking if it was a good plan or not.
There are some other requirements https://ifap.ed.gov/sfahandbooks/attachments/0304Vol8Ch2eligibleborrower.pdf
@gluttonforstress, Is the Parent Plus the loan where parents can borrow as long as they don’t have any bills 90 or more days overdue? If that’s the case, which loan is it that parents can qualify for one year but not subsequent years? Are those just private loans obtained through banks?
The only significant hurdles are no 90 day late accounts, no forclosures or bankruptcies in the previous 5 years, and no SL defaults. Income isn’t even a consideration. That’s why the origination fees and interests rates kind of suck. You do have to be a citizen or GC holder too.
Gee, the origination fee (5%) and the interest rate (~7%) are not high at all. An unsecured bank loan, if even available and there aren’t many banks that make such loans, would carry a rate much higher, probably in the 15% range. At a finance company an unsecured loan is usually limited to $5000 and the rate would be 24-36%.
Parent Plus loans are a good deal if you want money. Ask Martin O’Malley who took out about $350k of them for his kids to go to school. It’s the cheapest unsecured loan there is.
5% origination on top of 7% rates are practically usurious in the current interest rate environment. Most private lenders are in the 3-5% range with no origination fees. But again, you have to qualify with good credit and you have to demonstrate the ability to pay it back. That’s why they are cheaper.
And don’t Parent Plus loans require payment the next year (or semester I forget which)? Meaning payment can’t be deferred until the student graduates.
Parent Plus loans can be deferred until after graduation. The interest starts accruing immediately.
@gluttonforstress , please provide the information for one source of a private lender who will make an unsecured loan at 3%. Not even a mortgage can be had for 3% and no origination fees. Unsecured lending is much much higher if you can even find it. Some people have credit card rates at 6% or so, but those are not available without qualification. The usury rate in most states is 45%. Usury is a crime, not just that you think the interest rate should be lower. Lenders, banks, and others are regulated and those regulations may restrict rates, but a person can lend to another person at rates they agree to, up to the usury rate.
Most banks do not make unsecured signature loans. Finance companies do, payday lenders do, but most federal and state chartered banks and credit unions do not make them, especially for amounts more than $5000. The banks only make the student loans because the government has set the specific restrictions so tight. The origination fee is high, but so is the default rate. The servicing of the loan is also a high expense for the bank. Many banks have stopped making private student loans because the return isn’t that good.
I had a friend who was a Savings and Loan manager (remember those?). She was criticizing my finance company for lending at such high rates. I asked her what her rate was on a $3k unsecured loan. “Oh, we don’t make those. Too risky.” Exactly. And that was in the day when everyone was taking risks and interest rates were at 15%+, even car loans.
If 3-5% were available, all our credit cards and other non-secured lending would be at that rate. Even the government charges more than that when you owe them money on your taxes. You are ‘borrowing’, the amount is generally unsecured (until they take a lien on your property), and they want that high 18% rate. If you could go out and borrow that $10k you owe on your taxes at 3%, it would certainly make sense to do that but you can’t, so most people just pay the IRS as the lender.
<<<
Everyone seems to be avoiding the obvious answer here
<<<
Well, some of us don’t consider that to be the “obvious answer” for a few reasons:
This isn’t a student loan. The student will not owe the money. ONLY the parent is on the hook. If for some reason, the student is unable to pay, no one except mom will be hounding him for repayment …and mom will have little/no recourse to go after her child forcing him to pay.
There may be other children in the family, and therefore the idea of a single modest-income parent potentially being on the hook for $100k-200k+ in loans is insane.