Can my grandfather borrow a PLUS Loan instead of my parents? My mother says her credit scores are probably too low to qualify.
Grandparents cannot borrow from the Parent PLUS Loan program for the benefit of a grandchild unless they have legally adopted the grandchild.
Grandparents who are a legal guardian to a grandchild but who have not adopted the grandchild are also not eligible to borrow from the Parent PLUS Loan
program. If a student is or was in a legal guardianship (as determined by a court of competent jurisdiction in the student’s state of legal residence) prior to reaching the age of majority, the student is considered to be an independent student.
The credit criteria for the PLUS Loan are not as harsh as the credit criteria for private education loans, since the PLUS Loan does not depend on credit scores or debt-to-income ratios. Instead, the borrower of a PLUS Loan must not have an adverse credit history. An adverse credit history can occur if the borrower has a current delinquency of 90 or more days on more than $2,085 in total combined debt, certain accounts in collections or charged-off within the last two years, or has a bankruptcy discharge, foreclosure, repossession or certain other derogatory events within the last five years.
If a dependent student’s parent is denied a Parent PLUS Loan, the student becomes eligible for the same increased Direct Unsubsidized Loan limits as an independent student.
The student’s grandparent can, however, cosign private student loans. This is not necessarily a good idea if the grandparent is on fixed income. A cosigner is a co-borrower, equally obligated to repay the debt. If the student is unable to repay the debt, the grandparent may then be required to repay the private student loans.
Borrowing from the PLUS Loan or a private student loan may be a sign of over-borrowing. So, the student and his or her family should consider whether they are borrowing more than they can afford to repay. Total student loan debt at graduation should be less than the student’s annual starting salary. The parents should borrow no more for all their children than they can afford to repay in ten years or by the time they retire, whichever comes first.
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