Some parents dislike PLUS loans because they don't want to be responsible for repaying the loan (although the student is allowed to take over the payments). But if you're a parent, telling your child to get a private loan won't necessarily get you off the hook. To get favorable terms on a private loan — or, in some instances, to get a loan at all — most students need a co-signer with good credit. And a parent who co-signs for a loan is responsible for payments if the borrower falls behind.
Parents can qualify for a PLUS loan even if they don't have a high credit score. But PLUS lenders are allowed to reject parents who have a foreclosure or bankruptcy on their credit record. Ordinarily, 75% to 80% of parents who apply for PLUS loans are approved, but rising foreclosures could make more families ineligible, says Robert Shireman, director of the Project on Student Debt.
Even if that happens, you can avoid taking out a private loan, or at least reduce the amount you need to borrow through private loans. If your parents are turned down for a PLUS loan, you're eligible for higher loan limits on your federal student loans, Shireman says. If you're a freshman, for example, and your parents were denied a PLUS loan, you'd qualify for up to $7,500 in federal loans.
You can find more information about federal student aid at the Education Department's website, www.federalstudentaid.ed.gov.