Parent Plus Loan Interest Rate 2017 – Democratic politicians often claim that the federal government makes money off of student loans. However, the latest release from the Congressional Budget Office (CBO) shows that the truth of that statement depends on how you crunch the numbers. The government is losing money on student loans by using fair value accounting, which involves the greater risk taxpayers take on student loans. And this is no small loss. Over the next ten years, the federal student loan program comes with a price tag of $170 billion.
Estimating the cost of government programs is difficult. For example, a dollar earned in the future is worth less than a dollar spent today, so we have interest on debt. That dollar of future earnings is worth less if we’re not sure we’ll actually earn it—for example, if that dollar comes from a student loan program with a high default rate.
Parent Plus Loan Interest Rate 2017
For this reason, accountants apply discount rates to future cash flows, which tell us how much we expect the dollar amount to be in the future. For safer investments, such as U.S. Treasury bonds, discount rates are relatively low. Discount rates should be higher for risky investments like student loans. The Department of Education’s latest data release shows that 46% of federal direct student loans are unpaid.
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CBO produces two estimates of the cost of the student loan program—the standard estimate, with lower discount rates, and another with “fair value” discount rates that reflect market risk. Under the low-discount scenario, the government would receive $37 billion on the student loan program between 2017 and 2026. However, under a more accurate fair estimate, Uncle Sam would lose $170 billion.
The loss of $170 billion includes a loss of about $130 billion. Even more staggering is the scale of total student loan spending: $1.1 trillion over the next ten years, almost as much as the current level of outstanding student loans.
Under CBO’s accounting standard, the government makes a profit on four out of five federal student loan programs (the exception being subsidized loans for undergraduate students). Under fair value accounting, however, the government lost four of the five programs.
This time, the exception is Parent Plus Credit. CBO projects that the program will generate $19 billion for taxpayers over the next ten years. However, there are reasons to think this number may be too optimistic. Parent Plus loans represented a small fraction of previous student loans, allowing parents of undergraduates to borrow up to the cost of their child’s attendance (as determined by the school). However, with the rising cost of college, PLUS loans have grown rapidly in size and scope. Although defaults are relatively low, they are likely to increase as parents take on more debt for their children’s education.
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If the government really made a profit from student loans, private lenders would likely step in and offer lower interest rates to students. However, more than 90% of student loans originate from the federal government, indicating that it does not adequately compensate taxpayers for the variable risk costs of the interest rate loans it offers.
What to do? The main problem is that students take on huge amounts of debt to go to college. Since 2000, after adjusting for inflation, tuition and fees have increased by 46% at private four-year universities and 94% at public universities. Federal student aid is responsible for this, as colleges receive funding from taxpayers through the federal loan program and have no incentives to cut costs and tuition.
To control rising student debt levels (and reduce taxpayer costs), policymakers must start at the source: controlling the cost of higher education. That means limiting subsidies that colleges are allowed to receive from the federal government, promoting accountability for low-performing schools, and encouraging alternative ways of education that aren’t as costly.
High levels of student debt represent two costs. The first is the cost to taxpayers, estimated at $170 billion over the next decade. The second cost is added to students: Heavy debt burdens slow students from buying homes or starting families, which slows economic growth for the rest of us. Fortunately, these costs can be avoided with the right mix of innovation and smart policies. You are here: Home / US Student Loan Center / Student Loan Consolidation / The Complete Guide to Understanding Parent Plus Loans
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Are you a parent who has taken out a Parent Plus loan? Has your student graduated and now it’s time for you to pay it forward?
Let’s take a look at everything that goes into qualifying, managing and repaying your Parent Plus Loan.
The Parent Plus Loan (PPL) is a federal student loan available to parents of dependent undergraduate students.
Parents are fully responsible for this loan. The student is not responsible for repaying the loan.
The Complete Guide To Understanding The Parent Plus Loan
Simply put, Parent PLUS Loan is a direct PLUS loan applied for by the student’s parents.
Direct Plus Loan This is a loan for parents of dependent undergraduate students or graduate/professional students. The application will provide the appropriate information the school will use to determine how much the student is eligible to receive.
In 2018, the interest rate for Parent Plus loans is 7.0%. This is a fixed interest rate for the life of the loan.
Fixed interest rate The interest rate you start with is the rate you’ll be entitled to for the entire term of the loan. Therefore, unless the borrower is placed on an income-driven repayment plan, the monthly payment will remain the same throughout the life of the loan.
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For example, suppose you borrowed a total of $30,000 from PPL with an interest rate of 7.00%.
If you pay it off with the 10-year standard repayment plan, you’ll pay $11,799 in interest at the end of the loan for a total of $41,799.
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According to the US Department of Education, to qualify for the PPL, the applicant must:
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(Note: Before applying for a Parent PLUS Loan, a borrower should understand the best ways to repay the PLUS Loan. If you plan to apply, you should first go through this short 8-step repayment plan guide. This is the best way. (Get the free 8-Plan Repayment Planning Guide here.)
When it comes to federal loans, there are credit limits on how much you can borrow each year. Often, it is not enough to cover the full cost of attending university.
Worse, the parent of the dependent student can consider and apply for this loan.
Parents apply for the Parent Plus Loan to fill the gap between the federal loan amount already provided and the actual cost of attendance.
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First and second year students are awarded $4,000 or more, third year and beyond $5,000 or more.
Parent Plus Loans can also be used to cover additional fees associated with the cost of attendance. This may include:
Parents! You should remember that there are many loan options available to you and your child.
There are many personal loans that can offer you better interest rates for the same loan amount! Some personal loans like Sallie Mae offer a 0.25% interest rate reduction if you choose to pay automatically each month.
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Many people believe that the student can transfer the loan in their name after graduation.
At the end of the day, the responsibility of repaying the loan rests entirely with the parent who signed the loan.
So beware, by combining your PLUS loan with additional federal loans, you may end up paying more than you should.
Your servicers will try to consolidate all of your federal loans (including your PPL) because it makes your monthly payments “easy.”
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*Do not consolidate your federal loan with your PLUS loan* This will give you a higher total monthly payment.
Because they want all your loans to be on an income-contingent repayment plan. As a result, you need 20% of your income to pay off your student loans.
However, do your own research before making important decisions about your credit. Also, talk to an expert who understands red tape.
(Note to borrower: Consolidation is not the only option, even if your servicers tell you. Free guide, here.)
Pros And Cons Of Student Loan Consolidation For Federal Loans
However, you should consider how long it will take to pay off the entire loan.
Finally, you need to remember how much
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