What is a Parent Loan (Everfi)? Your Comprehensive Guide

A Parent Loan (Everfi), often referencing the PLUS Loan program promoted through Everfi’s educational platform, is a federal student loan available to parents of dependent undergraduate students. Its primary purpose is to help families bridge the gap between the cost of college and other financial aid resources. Unlike loans taken out directly by students, Parent PLUS loans place the responsibility of repayment directly on the parent borrower. Everfi, as a financial literacy education provider, integrates information about these loans into its curriculum to help families make informed decisions about financing higher education.

Understanding the Nuances of Parent PLUS Loans

While often referred to generally as “Parent Loans,” the specific loan type being discussed, particularly within the context of Everfi, is usually the Federal Direct Parent PLUS Loan. Let’s delve into the specifics:

• Federal Loan Program: This loan is backed by the U.S. Department of Education, making it a federal student loan. This distinction is crucial, as it carries certain protections and repayment options not typically found with private loans.
• Parent as Borrower: The loan is taken out in the parent’s name, not the student’s. This means the parent is legally responsible for repaying the loan, regardless of whether the student graduates or finds employment.
• Dependent Undergraduate Students: The student must be classified as a dependent undergraduate according to the Free Application for Federal Student Aid (FAFSA) guidelines. Dependency status considers factors like age, marital status, and financial support.
• Covers Educational Expenses: The loan can be used to cover any educational expenses certified by the school, including tuition, fees, room and board, books, and other related costs. The maximum loan amount is the student’s cost of attendance minus any other financial aid received.
• Credit Check Required: Unlike some other federal student loans, a credit check is required for Parent PLUS loans. Adverse credit history can result in loan denial. However, there are options available, such as obtaining an endorser (co-signer) or documenting extenuating circumstances.
• Interest Rates and Fees: Parent PLUS loans have fixed interest rates that are set annually by Congress. There is also a loan origination fee, which is a percentage of the loan amount deducted before disbursement.
• Repayment Options: While standard repayment plans are available, Parent PLUS loans are also eligible for income-contingent repayment plans (ICR), particularly if the loans are consolidated first. This can make repayment more manageable for some borrowers.
• Everfi’s Role: Everfi doesn’t directly offer loans. Instead, Everfi provides educational resources to help students and their families understand the complexities of college financing, including information about Parent PLUS loans, the application process, interest rates, repayment options, and the potential risks and benefits of taking on debt.

The Importance of Financial Literacy

Everfi’s emphasis on financial literacy in the context of Parent PLUS loans is vitally important. Many parents may not fully understand the implications of taking out a significant loan, particularly if they are unfamiliar with the intricacies of federal student loan programs. By providing comprehensive educational modules, Everfi aims to empower families to make informed decisions that align with their financial capabilities and long-term goals. It is crucial to understand the long-term financial commitment that comes with this type of loan.

Frequently Asked Questions (FAQs)

Here are 12 frequently asked questions about Parent PLUS loans, providing additional insight for those considering this option:

1. Who is eligible for a Parent PLUS Loan?

To be eligible, the parent must be the biological or adoptive parent (or in some cases, a stepparent) of a dependent undergraduate student enrolled at least half-time in an eligible school. The parent must also meet credit requirements. The student must also meet the basic eligibility requirements for federal student aid.

2. What does “adverse credit history” mean in the context of a Parent PLUS Loan?

Adverse credit history, for Parent PLUS Loan purposes, typically includes having accounts that are 90 or more days delinquent, having defaulted on a loan, having filed for bankruptcy, or having been subject to foreclosure, repossession, or wage garnishment within a certain timeframe (usually five years).

3. What if my Parent PLUS Loan application is denied due to adverse credit history?

If denied, you have two options: obtain an endorser (co-signer) who meets the credit requirements or document extenuating circumstances related to your adverse credit history. If approved with an endorser, you may be eligible to have the endorser released from the loan after making a certain number of on-time payments.

4. How much can I borrow with a Parent PLUS Loan?

You can borrow up to the student’s cost of attendance (as determined by the school) minus any other financial aid the student receives. This includes grants, scholarships, and student loans.

5. What is the interest rate on a Parent PLUS Loan?

The interest rate on Parent PLUS Loans is fixed and is set annually by Congress. It’s usually higher than the interest rates on Direct Subsidized and Unsubsidized Loans offered to students. Check the U.S. Department of Education’s website for the current interest rate.

6. When do I have to start repaying a Parent PLUS Loan?

Repayment typically begins 60 days after the final loan disbursement. However, you can request a deferment while the student is enrolled at least half-time and for an additional six months after they graduate or drop below half-time enrollment. Interest accrues during deferment periods.

7. Can I consolidate my Parent PLUS Loans?

Yes, you can consolidate your Parent PLUS Loans into a Direct Consolidation Loan. This can simplify repayment by combining multiple loans into one with a single monthly payment. Consolidation can also make you eligible for income-contingent repayment plans.

8. What repayment options are available for Parent PLUS Loans?

Standard repayment, graduated repayment, extended repayment, and income-contingent repayment (ICR) plans are available. The ICR plan requires consolidation first. It is imperative to consider the long-term impact of choosing a longer repayment plan, as you will pay more interest.

9. What is an Income-Contingent Repayment (ICR) plan for Parent PLUS Loans?

ICR is an income-driven repayment plan that bases your monthly payment on your discretionary income, family size, and loan balance. After 25 years of qualifying payments, any remaining balance is forgiven. However, the forgiven amount may be subject to income tax.

10. What happens if I can’t afford to repay my Parent PLUS Loan?

If you are struggling to repay your loan, contact your loan servicer immediately. They can discuss options such as deferment, forbearance, or income-driven repayment plans. Ignoring the problem can lead to delinquency, default, and significant negative consequences for your credit score.

11. Can a Parent PLUS Loan be discharged if the student dies or becomes totally and permanently disabled?

Yes, a Parent PLUS Loan can be discharged if the student for whom the loan was taken dies or becomes totally and permanently disabled. You will need to provide documentation to support the discharge application.

12. Where can I find more information about Parent PLUS Loans and financial aid for college?

You can find comprehensive information on the U.S. Department of Education’s website (studentaid.gov). Additionally, Everfi offers valuable financial literacy resources. Your student’s college financial aid office is also a great resource for personalized guidance. Remember, understanding the terms and conditions of a Parent PLUS Loan is crucial before committing to it. Informed decisions are always the best decisions.