Imagine this scenario: Your child has been out of college for over a decade and moved on to a successful career. Your own career is coming to a close and retirement is only a few years away. And yet, you still owe thousands of dollars for your child’s college bills. This scenario is a reality for many parents who take out federal direct PLUS loans. While these loans might seem like an easy way for parents to help their child with e𓃲ducation costs, in far too many cases, the💟y put the parent’s financial security and retirement at risk.

How PLUS Loans Work

PLUS is an acronym for Parent Loan for Undergraduate Students. (There's also a grad PLUS program for graduate and professional students borrowing on their own.)

The parent PLUS program allows parents to borrow money for dependent students to pay any costs not already covered by the student's financial aid, such as Pell Grants, student loans, and paid work-study jobs.

澳洲幸运5开奖号码历史查询:PLUS loans have fixed interest rates for the life of the loan. They are typically repaid over 10 years, although there's also an extended payment plan that can lengthen the term up to 25 years.

Parent PLUS loans are the 澳洲幸运5开奖号🐷码历史查询:financial responsibility of the pa♏rent rather than the student. They can't be transferred to the student, even if the student has the means to pay them.

Danger 1: There's No Automatic Grace Period

When a student takes out a loan, they typically have six months after graduation to start the repayment process. This isn't the case with PLUS loans. The repayment period starts immediately after the child or school receives the money; however, parent borrowers can contact the 澳洲幸运5开奖号码历史查询:loan servicer to request a deferment while the student is enrolled at least half-time and for six months after they leave school. Interest will accrue during the deferment period.

Danger 2: PLUS Loans Aren't Eligible for Most Income-Driven Repayment Plans

The federal government offers four different income-driven repayment (IDR) plans for student loans. They limit monthly payments to a percentage of the student's discretionary income (generally 10%). If the student makes those payments for a certain number of years (typically 20 or 25), any remaining loan 澳洲幸运5开奖号码历史查询:balance will be forgiven.

Parent PLUS loans, however, are eligible for only one of these plans, Income-Contingent Repayment (ICR), and only after the parent has consolidated their PLUS loans into a 澳洲幸运5开奖号码历史查询:federal direct consolidation loan. An ICR plan limits payments to no more than 20% of discretionary income, to be paid over a term of 25 years—which is a long time horizon for the average parent.

Dang🐲er 3: You Can Eas📖ily Borrow More Than You Need

When you apply for a direct PLUS loan for your child, the government will check your 澳洲幸运5开奖号码历史查询:credit report, but not your income or debt-to-income (DTI) ratio. In fact, it doesn't even consider what other debts you have. The only negative thing it looks for is an adverse 澳洲幸运5开奖号码历史查询:credit history.

Once you're approved for the loan, the school sets the loan amount based on its 澳洲幸运5开奖号码历史查询:cost of attendance; however, a school’s cost of attendance is usually more than most students actually pay. This can lead to parents borrowing more than their child needs for college.

If you have other outstanding debt, such as a mortgage, you may💖 find yourself in over your head when it comes time to repay the PLUS loan.

Danger 4: They're Difficult to Get Out of, Even in Bankruptcy

Not making payments and letting a PLUS loan go into default is a huge mistake. Even declaring bankruptcy won't dismiss the debt without an additional action called an adversary proceeding. This secondary lawsuit is filed to prove that repaying the loan would cause an undue financial hardship. While this makes it possible to escape your direct PLUS loans, it's still difficult.

Until the debt has been repaid, the government can garnish your wages, or it can withhold money from your Social Security benefits and tax refunds. What's more, there are no time limits for when the government can collect the debt. So before you even consider defau🎃lting, contact your loan servicer for ad𓂃vice, or seek out an attorney who specializes in student loan debt.

What's more, unlike 澳洲幸运5开奖号码历史查询:Sallie Mae loans, you won't be able to have a 澳洲幸运5开奖号码历史查询:PLUS loan balance forgiven if your child is later faced with 澳洲幸运5开奖号码历史查询:total permanent disability (TPD). If you, not the child, become permanently disabled, the PLUS loan is 澳洲幸运5开奖号码历史查询:eligible for discharge. It is also eligible in the event that the student for whom you borrowed dies.

What to Do Before You Take Out a PLUS Loan

Many times, a school will present the student's financial aid package with a direct PLUS Loan added in. The school might say that it wants to make families aware of all of their available funding options, but including the direct PLUS loan in the package can make the true cost of college confusing. When considering the costs of college, ask for a financial aid package breakdown without the PLUS loan.

Instead of a direct PLUS loan, you might have your child opt for a private student loan for any leftover costs that grants, work-study, federal student loans, scholarships, and other aid don't cover. If you want to help your child financially, you can make payments on the private loan while they're still in school. This allows you to subsidize your child’s college costs but doesn't hold you solely accountable for the debt.

What to Do if You Have a PLUS Loan

If you took out a direct PLUS loan for your child's education and are struggling to pay it back, consolidation (as described above) might be an option. Be aware, however, that while increasing the length of your loan will decrease your monthly payments, it will also increase the total amount you will have paid by the end.

Refinancing the PLUS loan is another possibility. In fact, even if you aren't struggling to repay your loan, it's worth looking into refinancing to see if you can secure a lower interest rate and monthly payments.

The smartest financial move is to try to pay as much as you can toward the loan while you're still earning money, even if it means you have to tighten your budget, and not take it with you into retirement.

Additionally, try to avoid borrowing against your retirement funds, such as 401(k) plans, or cashing out of them early to cover the loan costs. Instead, if you're nearing retirement, consider working a few more years, if you are in any position 🅺to do so, to pay off the loan before retirement.

The Bottom Line

Helping your child with the cost of college is a noble thing to do, but not if it lands you in a difficult spot financially or puts your retirement at risk. Ultimately, your child will have several decades to pay off their student loans before they retire, and their loans—澳洲幸运5开奖号码历史查询:unlike parent PLUS loans—may be eligible for 澳洲幸运5开奖号码历史查询:loan forgiveness programs and more generous IDR plans.