Many parents want to help out their children in college education, but their current financial situation leaves them unable to provide the cash for college. Some of them have turned to Federal Plus loans as an option.

These are low interest rate loans that parents can take for their child(ren)’s college tuition. Students who have little or no financial aid and no credit history may think this is the best deal for everyone, but is it? What are some of the advantages and disadvantages of the Plus loans?

Advantages of Federal Plus Loans

Depending on your circumstances, there are some benefits to taking out a PLUS loan.

  • PLUS loans can cover up to 100% of the cost of tuition
  • Right now, fixed interest rate of 7.9% for loans taken out July 1, 2010 or later
  • Interest could be tax deductible
  • You can borrowed directly from the government or a private lender
  • The loan’s repayment term usually is 10 years.

For families that can afford the payments, having PLUS loans allows them to send their kids to college without having their child(ren) in debt. Right now the average debt for college students attending a four year public school is a little over $20,000.

Disadvantages of Federal Plus Loans

  • Parents are responsible for the loan
  • Loans come with fees (origination is typically 3% of the loan)

I think that having the parents solely responsible for the student loans can be detrimental to the family. Students may not realize how significant the debt is if someone else is taking care of it. Parents may stress out as their kids switch majors and explore subjects, as the loan gets larger. If something happens to their income, parents can have their credit history trashed.

While these loans are typically low interest, they are not free to get. Are the parents expected to foot the bill for those expenses too?

Effects on the Family

Is getting a loan through your parents the best option? You all have to decide for yourselves. My suggestion is to answer some of the questions below and see if you can come to an agreement.

  • Can the family afford the loan payments?
  • What portion should the student be obligated to contribute once they graduate?
  • Will students or parent pay if a major is changed?
  • Is the student expected to work in the summer to help pay for the loans?

If you decide on getting the PLUS loan, make sure you put everything into writing. Everyone should be on the same page and you want to keep everything transparent.

Your Thoughts

Do any of you have parents who have taken out Federal Plus loans? What have been the benefits? What have been the disadvantages?