After his son was accepted at the University of Maryland–Baltimore County, with an opportunity to play lacrosse, his father applied for a Parent PLUS loan to cover the costs.
But a long-ago bankruptcy and tax lien caused the father, who shared his experience with U.S. News but declined to be named, to fail the required credit check. Unsure of where else to find money to fund his son’s college costs, he filed an appeal.
It worked. The father became eligible to borrow Parent PLUS loans, federally backed debt which covers up to the full cost of college.
He’s sending his son to UMBC this fall. “I didn’t know any other avenues if I was going to be turned down completely,” he says, referring to the PLUS loan. “Fortunately, it all worked out.”
Federal Parent PLUS loans, which carry a 6.84 percent interest rate in 2015-2016, require an application verifying that borrowers have no adverse credit history.
That means that borrowers can’t, for example, have recent bankruptcies or large debts more than 90 days delinquent. They can’t have had a recent wage garnishment or tax lien, among other disqualifiers.
The rate of PLUS denials “will vary from school to school,” says Dominic Yoia, associate vice president and university director of financial aid at Quinnipiac University. “It’s not all that common at Quinnipiac, but we do get denials each year.”
Fortunately, parents denied PLUS loans aren’t up debt creek without a paddle. Here are four steps they can take after a PLUS loan denial.
[Know these four strategies for repaying Parent PLUS loans.]
1. File an appeal: Parents who suspect that an error or extenuating circumstances contributed to the denial can file an appeal. “We’ve had many students and parents who’ve gone through that process and been very successful,” says Derek Kindle, executive director of student financial services at Howard University in Washington, D.C.
To appeal, parents submit a form, with updated information from their bank, creditors or other sources to support their claim. For example, they may need to include documents showing that they are on a repayment plan to tackle an overdue debt. The UMBC father who had been denied a PLUS loan demonstrated that he was released from bankruptcy and was on a repayment plan with the IRS to tackle his tax liens, he says.
2. Borrow unsubsidized loans: One of the silver linings of a PLUS denial is that it allows the dependent student to borrow more unsubsidized student loans, which tend to carry a lower interest rate, better repayment terms and a smaller origination fee than a PLUS loan. “The student is seen like an independent student in the government’s eyes,” says Rachel Fishman, senior policy analyst for the Education Policy Program at the New America Foundation, a policy think tank.
Students may qualify for $4,000 or $5,000 more in unsubsidized debt, depending on their grade level. “For many families, that’s what they choose,” says Yoia.
[Take three steps to file the FAFSA as an independent student.]
3. Score an endorser: Parents still looking to tap a PLUS loan can enlist a cosigner, such as a grandparent or family friend. “This is where it’s a personal decision for the family,” says Yoia.
The cosigner, called an endorser on PLUS loans, can’t be the student for whom the parent is borrowing. In order to sign onto the loan, the endorser must pass the credit check and agree to take responsibility if the parent fails to repay.
4. Examine alternative avenues: “Look to resources other than loans to fund educational balances,” says Yoia, of Quinnipiac.
Students can investigate scholarships and grants, which may provide money that doesn’t need to be repaid. They may consider a private student loan, with a cosigner, but should be aware that many of the protections and benefits of federal loans don’t extend to the private sphere.
[Ask these 10 questions before borrowing a private student loan.]
A university’s payment plan may allow parents and students to break up tuition payments into installments over the course of a semester, says Yoia.
State-backed education loans may offer another route, says Fishman, of New America. “They’re usually not well-publicized and state-specific,” she says. For example, the Massachusetts Educational Financing Authority, or MEFA Loan, is an option for qualified state residents — although applicants still need to pass a credit check.
And students may need to approach the grown-up, real-world possibility of heading to a school that’s affordable without PLUS loans. “Always have more than one school that you’re applying to and willing to go to,” says Fishman. “And always have an in-state public option.”
Trying to fund your education? Get tips and more in the U.S. News Paying for College center.
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4 Alternatives to Consider When Denied a Parent PLUS loan originally appeared on usnews.com
