Federal PLUS Loans
There are two types of federal PLUS loans. The parent PLUS loan is for parents or guardians of students who are dependents and attending
undergraduate school. The grad PLUS loan is available only for graduate or professional students. Both loans require that the student be
attending school at least half time. These federal loans are considered unsubsidized loans. In other words, the interest will start to
accumulate as soon as the loan is administered. Unlike federal Stafford loans, both federal PLUS loans are credit based loans and depend
solely on the credit rating and credit history of the applicant, not on their financial needs.
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Benefits of federal PLUS loans Although there are many benefits to federal PLUS loans, it is recommended, and sometimes required by schools that the borrower exhausts all federal Stafford loans, scholarships, and grants before applying for a PLUS loan. The parent and grad PLUS loans have a relatively high fixed interest rate of 8.5% compared to the 6 or 6.8% rate currently applied to Stafford loans. The amount of the PLUS loan an applicant is eligible for is determined by the total estimated cost of school related expenses minus all other financial aid already awarded. For example, if the school estimates the total cost of attendance for one year to be $30,000 and you receive $15,000 in Stafford loans and/or other financial aid, the most you may receive from a PLUS loan is the remaining $15,000. All school related expenses may include, but are not limited to tuition, room and board, travel, books, and computers. Other unique benefits of the PLUS loans are that no collateral is necessary, interest may be tax deductible, and many times the government will reduce certain fees for eligible borrowers. Such fees may include a .25% interest rate reduction if an automatic payment plan is used. No cosigner is needed for the grad PLUS loan unless there is history of credit difficulties and students always have the option to claim deferment and/or forbearance during times of financial hardship. |
Repayment of federal student PLUS loans Parents with a PLUS loan have the opportunity to make payments while their child is in school or can defer payment until graduation. There are never any penalties for early payments. When it comes time to pay back federal PLUS loans, students and parents have several different repayment options. The most common repayment plans include the standard plan, where you pay a fixed amount each month based on the accumulated interest and the amount borrowed. The graduated plan includes a monthly rate that increases over time. This is based on the interest rate, the amount of the loan, and the assumption that your salary will increase over time. The income sensitive plan offers monthly payments that are dependent on the borrower’s annual salary and the total loan debt. The extended repayment option is for those who want to extend the repayment process for up to 25 years. Like other federal student loans, consolidation is also a repayment option that can lower monthly payments by stretching them out over a longer period of time. A minimum of $20,000 in federal PLUS loans must have been taken in order to become eligible for PLUS loan consolidation. The downside to consolidation is that the longer the repayment process, the more money that is paid on accumulated interest. However, some borrowers may be eligible for a lower interest rate of 8.25% after consolidation. With a parent PLUS loan, parents are required to start repayment between 60 days and 6 months after the student has stopped attending college. Students are sometimes expected to start paying off their grad PLUS loan at the end of the month in which they graduated. Different lenders may offer different repayment plans so it is important to research all the details prior to applying for a federal PLUS loan. |
