The COVID-19 pandemic has created financial uncertainty for borrowers who currently have student loans — including parents. There’s good news for parents who’ve taken out student loans on their children’s behalf, however — financial relief options are available.
- Benefits of Parent PLUS student loans
- Parent PLUS loans during the coronavirus pandemic
- Parent PLUS loan rates
- See how much you can save with Parent PLUS loans
- Parent PLUS loans compared with other federal loans
- Private student loan relief during COVID-19
- Don’t feel pressured to take out student loans for your child
Benefits of Parent PLUS student loans
Parent PLUS loans are federal loans that parents with dependent undergraduate students can use to help their child pay for college. Federal loans have a number of benefits that private student loans don’t provide, which is why Parent PLUS loans should be the first option when borrowing for your child’s education. These benefits include:
- Fixed interest rates, typically lower than private student loans
- Ability to receive a Parent PLUS loan with an adverse credit history
- Repayment doesn’t begin until after your child leaves college, if you request deferment
- Flexible repayment plans and forbearance if you have trouble paying
The last point makes a strong case for Parent PLUS loans, and federal student loans in general, especially during situations like a pandemic.
Parent PLUS loans during the coronavirus pandemic
When emergencies like the current pandemic and recession happen, the government can step in and extend relief benefits for all federal student loan borrowers. This repayment relief may not necessarily happen with private student loans.
Federal student loan relief was provided when the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. Anyone with a federal student loan, owned by the U.S. Department of Education, was automatically placed in administrative forbearance — this includes defaulted and non-defaulted Direct Loans. Federal student loan payments are also paused from March 13, 2020, through September 30, 2020, at a 0% interest rate.
There’s also relief available if you ever have trouble paying your Parent PLUS loan outside of the CARES Act administrative forbearance window. Contact your loan servicer right away to discuss your options to keep your Parent PLUS loan in good standing. Options include adjusting your repayment plan to allow for a lower monthly payment, deferring the loan or requesting forbearance.
You could also become eligible for an income-contingent repayment plan if you consolidate your Parent PLUS loan into a Direct Consolidation Loan.
Please note that if you consolidate during the administrative forbearance period, however, you could end up with a higher interest rate on your loan than you were paying previously once the 0% interest period ends. Plus, any outstanding interest will be added to your principal balance.
Parent PLUS loan rates
There are obvious benefits to taking out Parent PLUS loans, but there’s also reason for caution. The COVID-19 pandemic has caused enough economic uncertainty that any loan can seem somewhat risky. This risk also applies to Parent PLUS loans, despite the fact that its interest rate has dropped to 5.30% — nearly a 2% drop from the 7.08% during the previous academic year.
This 5.30% rate for the 2020-21 academic year is the lowest Parent PLUS rate since the mid-2000s. Here’s how next year’s Parent PLUS student loan interest rate compares to prior years:
|Disbursement Date||Interest Rate|
See how much you can save with Parent PLUS loans
The Parent PLUS Loan interest rate decrease for the 2020-21 academic year is significant. But how much money would it save you personally? The Student Loan Planner Interest Calculator gives you an exact savings total and shows how much of your monthly payments will be applied to the principal balance and the interest.
Let’s compare the figures for a $50,000 Parent PLUS loan balance and a $400 monthly payment using the interest rate for loans borrowed for the 2019-2020 school year vs. 2020-2021:
That seemingly small interest rate decrease results in $18,047 saved in interest! If you’re considering taking out a Parent PLUS loan for your child’s education, now is the time.
Parent PLUS loans compared with other federal loans
One thing to keep in mind is that you shouldn’t borrow Parent PLUS loans solely to pursue student loan forgiveness. For starters, these loans don’t allow many forgiveness opportunities outside of extreme circumstances, like death, disability, or school closure.
Repayment options are also scarce — you can choose between a standard repayment plan, graduated plan or an extended plan. Additionally, Parent PLUS loans typically have higher interest rates than Direct Loans. The new 5.30% interest rate for the 2020-21 school year is lower than prior academic years, but it’s still high compared to Direct Loans at a 2.75% rate for undergraduates or even the 4.3% Direct loan rate for grad students.
If you feel Parent PLUS loans are your only option, contact a consultant at Student Loan Planner beforehand. We can help you identify all available options and loopholes that you might not have been aware of before.
For example, the Parent PLUS double consolidation loophole can decrease your payment from 20% of your income to 10%. You essentially would consolidate your Parent PLUS loan twice, which opens you up to more payment options, like Revised Pay You Earn (REPAYE), Pay as You Earn (PAYE) and Income-Based Repayment (IBR).
Our Student Loan Planner consultants would be happy to walk you through this process.
Private student loan relief during COVID-19
Unfortunately, the CARES Act doesn’t apply to private student loans, but there are still some financial relief options if you took out private loans to help pay for your child’s education. The benefits just aren’t as automatic as they are for federal student loan borrowers.
A number of private student loan lenders are offering forbearance at varying lengths, for example:
Citizens Bank is offering no late fees through June 2020 and a three-month COVID-19 emergency loan forbearance option. Interest will accrue but won’t be capitalized.
Late fees are waived during the pandemic; borrowers can apply for CommonBond’s natural disaster forbearance. Interest will accrue, but there are no fees to participate.
Borrowers may request forbearance of three monthly payments. The loan’s maturity date will be extended by the number of months the forbearance period lasts. Interest will accrue but not be capitalized. The COVID-19 forbearance won’t count against borrowers’ hardship forbearance allowance.
Minimum 90-day forbearance period — 60 days with an optional 30-day extension available to borrowers who are still impacted. Interest will still accrue.
Splash Financial is working with its lending partners to offer borrowers “historically low rates.” They work with borrowers on an individual basis and try to put them on forbearance, waive fees or take another action to help their situation.
You will have to contact your private student loan lender to request forbearance or other relief. They may not automatically pause your payments like the federal government is doing for Parent PLUS loans and other loans owned by the U.S. Department of Education.
If you don’t see your child’s private student loan lender listed above, it might not have its COVID-19 response plan on its website. In that case, call your lender and ask what relief options might be available to you. The sooner you call, the sooner you can start to create a relief plan.
Don’t feel pressured to take out student loans for your child
It’s understandable that you want to help your child pay for their college education. You don’t have to take out a lot of student loans to do so, however, and don’t let any educational institution tell you otherwise.
Your child can apply for scholarships or grants, which are the best financial aid option available because scholarships and grants don’t need to be repaid. If necessary, your child has the option to borrow student loans in their own name.
The COVID-19 pandemic has put economic uncertainty on a lot of borrowers’ minds, including in terms of how it affects higher education. If you have student loans for your child’s college education, or you plan on taking them out, you might still have relief options available to you.