Some Good News on College Loans

Parents looking at their battered 529 college-savings plans can take a little comfort from more lenient repayment rules on college loans. Until Congress changed the law last year, parents who took out a PLUS loan to help pay their children’s college expenses had to start paying back the loan within 60 days of the date they got the money. Under the new repayment schedule, parents can opt to wait until their child finishes college before starting to pay back the loan. Another option is to pay only the interest and wait until after graduation to begin paying back the principal.

PLUS loans are issued to the college student’s parents, unlike Stafford loans, which are the responsibility of the student. If the school your child will attend is part of the Federal Direct Loan program, you can apply for a PLUS loan directly through the school; otherwise you’ll need to find a third-party lender who is part of the Federal Family Education Loan program. Whichever way you go, the interest rate is fixed. It’s 7.9% through the federal program, and a maximum of 8.5% through a third-party lender.

Parents on the high end of the income scale don’t need to worry about qualifying for a PLUS loan, since there’s no income eligibility requirement. There’s also no minimum credit score requirement that you must meet, although your credit history could affect whether you get a loan. Parents who have declared bankruptcy, for example, or who are more than 90 days late with a mortgage payment, or have defaulted on a debt in the last 5 years, are generally not eligible for a PLUS loan.