This is the time of year when parents are stressing about paying for their child’s college tab. I’ve been hearing from parents who haven’t been able to borrow enough for college. I thought I’d share one of these emails.
A Mom’s Dilemma
Here is the mom’s note:
I would like to know what to do if you don’t qualify for a Parent PLUS loan?
Our second son is now in college, and we had quite a bit of money saved for their college (over $60,000, which is phenomenal for people with our early salaries), but I lost my job in 2009 and that put us into a financial pickle. We were able to pay for our oldest son’s first two years of college and our second son’s first year, but we are in the position now where we don’t have enough saved for his entire tuition and need to borrow – but we don’t qualify!
We earn about $150,000 per year, own our house and another house with NO MORTGAGE on it, and STILL cannot get a $9700 loan! We have tried EVERYWHERE. Any suggestions?
By the way – I wasn’t aware that we had any ‘issues’ on our credit. I just purchased a vehicle in March of this year after my car died and I got a 0% interest rate. How is it that you can borrow money to buy a vehicle but cannot borrow money for your child’s education? We are paying for him an apartment near campus and books out of pocket. We are just $9700 short.
A Borrowing Solution
Before I share a potential solution to this family’s problem, I want to explain what a Parent PLUS Loan is.
The PLUS Loan allows parents to borrow enough to meet the cost of a school’s attendance, which is determined by the college, that isn’t covered by their child’s financial aid package. There is no maximum borrowing limit. Considering how low inflation has been for years, the terms on the PLUS Loan are pricey. The interest rate is 7.9% and there is an additional 4% fee on the loan amount.
You can learn more about the PLUS by reading one of my previous posts:
Since the mom and her husband didn’t qualify for a PLUS, their child can borrow more via a federal Stafford Loan. A freshman can borrow up to $9,500 via a Stafford of which no more than $3,500 can be a subsidized Stafford. A sophomore, junior or senior can borrow $12,500 a year of which $5,500 can be subsidized.
Student who borrow through a subsidized Stafford do not have to pay the interest that accrues while they are still in school (the federal government covers it) and the interest rate (at least for this year) is 3.4% versus 6.8%.
Stafford Loan Borrowing Limits
The regular borrowing limits are considerably lower for students whose parents who do qualify for the PLUS.
- Freshman: $5,500
- Sophomore: $6,500
- Junior: $7,500
- Senior: $7,500
Stafford Loan Limits When PLUS Loan isn’t Available
Students whose parents don’t qualify for a PLUS can borrow significantly more. Here are the yearly Stafford borrowing limits for these students:
- Freshman: $9,500
- Sophomores, Juniors, Seniors: $12,500
The family should be able to borrow what it needs through this program.
Families who have bad credit (at least in the eyes of the federal government) can take greater advantage of the Stafford, which is a better loan because of its lower interest rates and built-in consumer protections.
Lynn O’Shaughnessy is the author of The College Solution: A Guide for Everyone Looking for the Right School at the Right Price.