What is a PLUS Lender? | Student Loan Ranger
Agreeing to become a PLUS lender is an important financial decision, as is this request to someone trying to get a loan to pay for the school. If you fall into either of these categories, you should understand the obligation and carefully weigh the possible consequences before making a decision.
Here’s what you need to know if you are looking for an endorser or have been asked to become one for a Parent PLUS or Grad PLUS state loan.
The 2 federal loans PLUS
The federal credit program PLUS offers two types of student loans. Parent PLUS loans are available to the parents of a qualified undergraduate student, and Grad PLUS loans are available to qualified graduate students.
The terms and borrower benefits of these two loans are slightly different, but both have higher interest rates and fees and less flexible repayment options than government-subsidized and unsubsidized loans.
In addition, a credit check is required for both PLUS credit types. The credit check is an application to ensure that the borrower does not have a credit rating that would disqualify him or her. An applicant may be denied a PLUS loan due to credit issues such as a large debt greater than 90 days, a tax lien, or a recent wage attachment or bankruptcy.
Why get an endorser?
An endorser may be required if the loan applicant has a negative credit rating. It is one of two ways a borrower can consider to get a PLUS loan nonetheless. An endorser is like a co-signer of a private loan – someone who agrees to repay the loan if the applicant doesn’t.
An alternative to obtaining endorsement is for the borrower to object to the rejection of the PLUS loan by explaining extenuating circumstances that led to the negative loan history.
If you choose to hire an endorser, that person cannot have a negative credit history. To check this, a credit check is carried out on the endorser. In addition, the endorser cannot be the student on whose behalf a parent is trying to obtain a PLUS loan.
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What is to be considered
Before you find a PLUS lender, the first thing you should consider is whether the only way to pay off college is by taking on additional debt. For undergraduate students, there may be other strategies that can help save money and reduce the debt burden, such as:
A PLUS loan denial is difficult news, and it can help to take some time before making a decision about your next move. Nonetheless, if you want to go ahead and try to get a supporter, consider carefully who to ask and how that commitment might affect your relationship with that person. For example, consider how things can change between you and your potential endorser if your credit defaults and that person has to start paying because you stopped.
Another thing to consider is whether that person will always be in your life and what could happen if you break up and still have this agreement which is a legally binding contract.
If you are on the other side of the equation and are considering becoming a PLUS lender, keep in mind that doing so poses a huge financial responsibility. When you become an endorser, you are essentially assuming the borrower’s obligation to repay the loan if they fail to do so, including unpaid principal, interest, late fees and, if applicable, collection costs.
Remember that if you are unable to pay as an endorser, all debt collection methods available to the federal government can be used against you, including wage garnishment. Additionally, your credit history will show a credit default which could affect your creditworthiness and future creditworthiness.
After all, as an endorser, you do not have all of the advantages of the PLUS borrower. For example, you cannot get a direct federal consolidation loan to repay the PLUS loan that you are the endorser of, and you are not eligible for a deferral, which is a benefit that allows someone to temporarily suspend payments. However, once you make payments on the loan, you can request a change in repayment schedules or a deferral.
How to endorse a PLUS loan
If you choose to become an endorser, the first thing you need to do is set up a Federal Student Aid ID, commonly known as an FSA ID, with a username and password.
After that you need the Endorser Addendum to the Master’s note at StudentAid.gov. To do this, you need the PLUS endorser code or the credit identification number that was given to the applicant in the rejection notification.
This endorser application includes the names and contact details of two references with different US addresses that you have known for at least three years and do not live with you.
If you are considering approving or soliciting a PLUS loan and you still have questions about it, contact a grant administrator at your college or university.