Strategic FAFSA loan timing: Take fall loan now & spring loan later with improved credit?

we did something similar last yr. got denied for parent plus in fall with bad credit then after paying off some stuff our score went up enough to get approved in spring. saved us from having to do that extra paperwork for dependent students with denied parents. but interest rates for parent plus loans are fixed for each academic year i think, not based on credit score like private loans

This is a common misconception. Federal Parent PLUS loans have fixed interest rates that are set each academic year for ALL borrowers regardless of credit score. For 2024-2025, the rate is 8.05%. The credit check for Parent PLUS is only pass/fail - you either have adverse credit history or you don't. A higher score won't get you better terms. Regarding interest: You're correct that borrowing in two installments means less interest accrual on the second disbursement. However, each loan will have its own origination fee (currently 4.228% deducted from disbursement), so you'll pay that fee twice.

I've done this before and while you WON'T get a better interest rate with better credit (as others mentioned), the TWO advantages are: 1) You only pay interest on half the amount for those months between fall and spring, and 2) If your credit improves enough that you can qualify for private loans with lower rates than the Parent PLUS, you could potentially use private loans for spring instead. The risk is that your credit might NOT improve as much as you hope, and private loans often have variable rates that could increase over time.

Another consideration: if you're denied for the Parent PLUS loan due to adverse credit history, your student automatically becomes eligible for additional unsubsidized Direct loans. So if your credit is borderline and might be denied now but approved later, that's actually a potential strategy - get denied now (giving your student access to more Direct loans for fall) and then get approved for spring. But as others mentioned, the interest rate doesn't vary based on credit score for federal loans.

I work in financial aid, and there's one more factor to consider: many schools automatically package and process loans for the full academic year. Splitting between fall and spring might require special processing and multiple conversations with your financial aid office. Make sure to contact them well in advance to explain what you're trying to do. Some schools might be resistant because it creates extra work for them.

Have you tried calling the Federal Student Aid helpline to ask directly? I was on hold FOREVER when I called about my daughter's parent plus loan situation. I finally used this service called Claimyr (claimyr.com) that holds your place in line and calls you back when an agent is available. They have a video showing how it works: https://youtu.be/TbC8dZQWYNQ. Saved me like 2 hours of hold time and the agent I spoke to was super helpful about explaining all our parent loan options.

One last thing to consider - if you're expecting those negative items to fall off your credit report, make sure they actually will! I had a situation where I thought something would fall off after 7 years, but the 7-year clock had actually restarted due to a payment I made on an old debt. Just don't want you making plans based on credit improvements that might not happen on schedule.

THIS IS WHY THE SYSTEM IS BROKEN!!! Why should parents have to jump through all these hoops and strategize about loans just to send their kids to college? The whole FAFSA parent contribution expectation is ridiculous. I make decent money but have 3 kids and the "expected family contribution" they calculate is LAUGHABLE. No normal family has that kind of extra cash sitting around!

To summarize the key points everyone has made: 1. Parent PLUS interest rates are fixed for the academic year regardless of credit score (pass/fail only) 2. You WILL save interest by borrowing only what you need for fall now 3. You'll pay the origination fee on each loan amount 4. If your credit improves significantly, you might qualify for better private loan rates for spring 5. Check with your school's financial aid office about their procedures for splitting the loan between semesters Given all this, your strategy does have merit, even if not for the exact reasons you initially thought.