Loans 101

Callen Clark, Reporter

Parent Plus Loans can be a saving grace and a bit of a hassle to students and their families. They can be there to help the student when there isn’t quite enough financial aid to cover tuition costs, but the loans could come with repercussions.

Parent plus loans are considered direct loans, which means the only lender is the federal government. Parents apply for the loans, as opposed to the student, and that means the parent’s credit history is the only one that affects – or is affected by – the loan.

“A Parent Plus Loan can be used when a student needs additional funds to pay the semester bill,” said Susan Fronzoni, Director of Student Financial Services.

Fronzoni says a main reason for parents to take out a parent plus loan is for extra funding needs.

The prospect of taking out the loan could prove to be a little daunting. The most recent literature from the U.S. Department of Education, available at the finan- cial aid office on the first floor of Mercy Hall, suggest that students consider what their expected family contribution is going to look like when they attend school.

The literature indicates that expected family contribution (EFC) is calculated by various financial factors. Anything that could be considered of value, whether it is taxed or untaxed, can be factored in to calculate a student’s loan. This includes unemployment or social security income, too.

The university uses that calculation to determine the overall financial need of a student. It sub- tracts the EFC from tuition costs to determine the student’s overall financial need.

Fronzoni encourages parents to understand their obligations before taking parent plus loans. “Eligibility is based upon the parent’s credit, not the student’s credit,” she said. “The repayment obligation is in the parent’s name and the debt can never be trans- ferred to the student.”

Parent must complete a master promissory note so that they can become eligible to take out the loan. One note can make a borrower eligible for loans for up to ten years.

As with all loans, direct plus loans have to be paid back. Loan terms vary from ten to 25 years, and parents are notified whenever they are expected to make a payment.

Parents may choose to defer payment on the loan, and during this grace period no loan payments are required until the student has graduated. Should parents elect not to have a grace period, they may make payments as the student attends school.

Students and their parents also need to consider interest rates.

Recent federal legislation fixed interest rates on certain loans, and capped interest rates on some loans. The legislation also significantly impacted Parent Plus Loans. Loans dispersed between July 1, 2013 and June 30, 2014 hold an interest rate of 5.41% for the life of the loan. That rate is subject to change annually and does so every year on July 1.

Students and parents should also consider the loan amount for which they qualify. Borrowers are strongly advised to only borrow as much as they need to cover the cost of tuition, according to the Department of Education.

According to the Federal Student Aid website, an applying parent’s credit history will be checked, and the parent cannot be in default of existing loans or grants.

Failure to repay the borrowed funds result in serious consequences: The parent may be required to repay the loan in full, lose eligibility for further federal student financial aid, and even lose eligibility for future loan deferments.

“If a parent is denied the Parent Plus Loan the student is eligible for additional unsubsidized federal Direct Stafford loan funds,” Fronzoni said.

Students who are considering federal direct Parent Plus loans should contact their financial adviser on the first floor of Mercy Hall. Sylvia Maas counsels students whose last names begin with the letters A through L, and Kathy Pesta advises students with last names beginning with the let- ters M through Z.

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