Agreeing to become a PLUS loan endorser is a major financial decision, and so is making that request of someone when attempting to borrow to pay for school. If you fall in either category, you should understand the commitment and carefully evaluate the potential consequences before making a decision.
Here is what you need to know if you are looking for an endorser or have been asked to become one for a federal Parent PLUS or Grad PLUS loan.
The 2 Federal PLUS Loans
The federal PLUS loan program offers two types of student loans. Parent PLUS loans are available to the parent of a qualifying undergraduate student, and Grad PLUS loans are available to qualifying graduate school students.
The terms and borrower benefits of these two loans differ slightly, but both have higher interest rates and fees and fewer flexible repayment options than federal subsidized and unsubsidized loans.
In addition, a credit check is required for both types of PLUS loans. The credit check is an application to verify that the borrower does not have a credit history that would disqualify him or her. An applicant can be denied a PLUS loan for credit problems like a big debt more than 90 days delinquent, a tax lien, or a recent wage garnishment or bankruptcy.
Why Get an Endorser?
An endorser might be needed if the loan applicant has an adverse credit history. It is one of two options that a borrower can consider to still receive a PLUS loan. An endorser is similar to a co-signer on a private loan — someone who agrees to repay the loan if the applicant does not.
An alternative to obtaining an endorser is for the borrower to appeal the PLUS loan rejection by explaining extenuating circumstances that led to the adverse credit history.
If you choose to obtain an endorser, that person cannot have an adverse credit history. A credit check will be performed on the endorser to verify that. In addition, the endorser cannot be the student on whose behalf a parent is trying to obtain a PLUS loan.
What to Consider
Before you find a PLUS loan endorser, you might first want to consider whether taking on additional debt is the only option to pay for college. For undergraduate students, there may be other strategies that can help save money and reduce the debt burden, like taking some courses at a community college or attending a public university for two years before transferring to a costlier college.
A PLUS loan denial is difficult news to receive, and it may help to take some time before making a decision about your next move. If you still want to move forward and try to get an endorser, think carefully about who you ask and how this commitment could affect your relationship with that person. For example, consider how it may change things between you and your potential endorser if your loan goes into delinquency and this person is required to begin making payments because you stopped.
Another thing to consider is whether this person will always be in your life and what might happen if you grow apart and still have this agreement, which is a legally binding contract.
If you are on the other side of the equation and considering becoming a PLUS loan endorser, remember that this is a major financial responsibility. When you become an endorser, you are essentially taking on the obligation of the borrower to repay the loan if he or she does not, including unpaid principal, interest, late fees and collection costs, if applicable.
Keep in mind that if you are unable to pay as the endorser, all collection methods available to the federal government can be used against you, including wage garnishment. Further, a default of the loan will appear on your credit history, which can affect your credit score and ability to borrow in the future.
Finally, as an endorser, you are not entitled to all of the same benefits as the PLUS loan borrower. For example, you cannot obtain a federal direct consolidation loan to repay the PLUS loan for which you are the endorser and you are not eligible to receive a deferment, which is a benefit that allows someone to temporarily stop making payments. However, if you are making payments on the loan, you may request a change of repayment plans or a forbearance.
How to Endorse a PLUS Loan
If you choose to become an endorser, you will first need to set up a Federal Student Aid ID, commonly called an FSA ID, with a username and password.
After that, you must complete the endorser addendum to the Master Promissory Note at StudentAid.gov. To do this, you will need the PLUS endorser code or loan identification number that was provided to the applicant when he or she was notified of denial.
Among other requirements on this endorser application are names and contact information for two references with different U.S. addresses who have known you for at least three years and who don’t live with you.
If you are considering endorsing a PLUS loan or asking someone to do so and you still have questions about it, reach out to a financial aid administrator at your college or university.
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