It is indeed tough to keep track of all the financial options that students have today in order to secure funds for their college education. Since the cost of higher education is increasing, parents are looking for constant ways to borrow money in order to pay for the deficit that can be created after all scholarships, grants, and savings have been carried out.
Two common terms that arise in these discussions are the FAFSA (Free Application for Federal Student Aid) and PLUS Loans. Comprehending the character of both and how they relate each other will assist the students and their relatives in the financing of the educational attainment of the latter.
What is FAFSA?
FAFSA is usually the first form that students complete to enhance chances of getting aid while in college. The U.S. Department of Education provides this application, which is used by colleges and institutions to assess students’ applications for federal and other forms of assistance. Completing the application opens the door for:
Pell Grants: They are also called financial assistance and do not require repayment.
Federal Work-Study: A form of employment undertaken by students to earn money for tuition cost.
Subsidized and Unsubsidized Federal Loans: A special loan more favorable than the common ones given to students.
State and Institutional Aid: Certain States as well as institutions of higher education has also the control over FAFSA aid.
Students and parents are obliged to surrender financial documents consisting of their tax returns and income levels. This information is useful in computing the Expected Family Contribution and using it to assess how much aid the student can receive.
What Are PLUS Loans?
Parent PLUS loans or grad plus loans are also called as plus loans parents are obtainable for loans as well as graduating students dependent trustee students, and graduate unfortunately also students are low-income students. On the other hand, unlike the loans that students can apply for themselves, PLUS Loans are given based on credit standard and must be fully paid together with the interest.
There are two types of PLUS Loans:
Parent Plus Loans: This loan is taken by parents to pay for the education of their children.
Grad Plus loan: This is for learners who are graduates or working learners who wish to take further studies but cannot use approved plus loan.
How Do FAFSA and Plus Loan Work Together?
Although completed online, filling out FAFSA is a requirement for acquisition of many forms of financial assistance. However, a plus loan is an employee assisted loan plus the minimum modifications for other types of employment loans.
Here’s how the sequence of processes takes place:
Step 1: Fill out the FAFSA: The first step before applying for a PLUS Loan is to fill out the FAFSA. This way, the students will be able to exhaust any available grants, scholarships, and loans prior to resorting to PLUS Loans.
Step 2: Assess the Financial Require: After the FAFSA is reviewed, students receive an offer of a financial aid package. Federal grants, conducts and other assistance depending on the cost of attending the school and the payment capacity of the family as per the EFC.
Step 3: If Needed, Apply for a PLUS Loan: In case the cost of education is not totally covered by the financial aid awarded to the student, families may apply for a PLUS Loan. The parents are allowed to debt up to the cost of attending the institution, less any financial assistance that the student has obtained. It could include the tuition, boarding, books and other materials needed for the course.
The Basics, Advantages and Disadvantages of PLUS Loans
As is the case with any financial product, there are also negative aspects of plus loans and positive aspects.
This is their summary:
Could be used to meet the Balance: It is possible to cover all the expenses of living and studying after taking a plus loan in addition to the scholarship awarded.
Repayment Procedure: Various options are available to the borrowers, such as income-sensitive repayment strategies where the monthly repayment amount is a percentage of the household income.
No Borrowing Limit: As opposed to federal student loans that have annual limits, a PLUS Loan permits a parent or a graduate student to borrow any amount up to and including the cost of attendance, less other aid.
Cons:
Credit Check Required: PLUS loans require a credit check so it means families with bad credit will not be qualified.
Higher Interest Rates: Borrowers are generally given interest rates that tend to be higher as compared to the federal student loans extended to students thus resulting in high repayments with time.
Responsibility Falls on Parents: The pressure lies on the parents in the event, of Parent PLUS Loans, instead of being on the student. If the loan becomes due and the parents are unable to pay up, then this could have negative consequences on the parent’s credits and finances.
Tips for Managing PLUS Loans and Financial Aid
Exhaust Non-repayable Aid: Always start with palatable non-repayable helps such as grants and scholarships before still owing money to one’s neck.
Borrow Only What’s Needed: While there are logical benefits in determining how much one can borrow some commonly recommend ignoring their suggestions.
Know the Repayment Terms: Always read the terms and conditions before seeking for these loans and understand all payments, including the percentages charged for PLUS Loans.
Consider the Impact on Credit: When considering applying for a Parent PLUS loan, parents should assess their credit and financial position.
Conclusion
With both the use of FAFSA and PLUS Loans, it is possible to cover all the financial needs for education for students attending college. Still, students and parents need to understand their financial aid offerings, search all possible funding sources that will not involve the use of debts, and weigh the consequences that arise from taking out PLUS Loans. In this way, they will be able to make decisions that will aid in achieving both education and financial wellbeing in the future.