Parent Loan for Undergraduate Students (PLUS) Loans: the Basics
Are your parents willing to take out a loan for your education? Consider this federal aid.
Most financial aid for college is geared toward the college student. The student is expected to pursue the college loans, scholarships and grants to fund their college education.
However, there are some college loans designed for parents or other legal guardians who want to support their children’s college degree. The most common of these loans is the federal aid called the Parent Loan for Undergraduate Students (PLUS) Loans, or PLUS Loans.
The PLUS Loan offers parents some flexibility with how they’ll repay the loan.
This loan is intended to support other types of financial aid the college student has received. In other words, this loan allows parents or guardians to borrow enough to cover tuition, room and board and other college costs after the student’s other financial aid has already been taken out of the total cost of attendance.
What Is the PLUS Loan?
Under the PLUS loan, parents can borrow an unlimited amount for their child’s education and can take up to 10 years to pay back the loan. In recent years, the PLUS loan was opened up to students pursuing a professional or graduate degree, such as a masters degree. This loan is not based on financial need and comes with a fixed interest rate.
The interest rate on this loan is higher than other federal college loans, although the amount of the interest rate depends on whether the college or university is part of the Federal Direct Loan Program or the Federal Family Education Loan (FFEL) Program, as both programs offer the PLUS Loan.
Unlike student federal aid, parents do not apply for the PLUS Loan with the FAFSA. Instead, you request a PLUS Loan application and promissory note from your school’s financial aid office. Or, if your school is part of the FFEL program, you can request this paperwork directly from the lender. However, graduate students seeking a PLUS Loan should submit the Free Application for Federal Student Aid (FAFSA) form.
Who Qualifies for the PLUS Loan?
The parents or legal guardians of a student pursuing undergraduate students and graduate students are eligible for taking out this college loan. Since this is a parent loan for undergraduate students, the loan cannot be transferred to the college student. The parent or guardian who takes out the loan is responsible for making the payments.
To be eligible for the loan, neither the parent nor the student can have problems with their credit history. The parents must pass a credit check, and if they don’t qualify for the loan, they can re-apply with a cosigner. Additionally, both the parent and the student must be US citizens or eligible non-citizens and must not have a defaulted federal college loan or owe a refund on a federal grant.
How Are PLUS Loans Repaid?
The PLUS Loan offers parents some flexibility with how they’ll repay the loan. Parents can begin making payments while their child is still enrolled in college or wait until the student has graduated or left school.
If the school participates in the Direct Loan program, parents will pay back the Department of Education. If the school is part of the FFEL program, the loan is paid back to the lender, such as a bank or other financial institution, that has funded the loan.
PLUS Tips & Tactics
- Were your parents ineligible for the PLUS Loan? You can contact your school’s financial aid office to see if you can get more college money through the Stafford Loan Program.
- One benefit for parents is that the interest on this loan may be tax-deductible. Parents can talk to their lenders and their accountants to find out.
- Because the PLUS Loan carries a higher interest rate than other loans, college students should complete their FAFSA form for federal aid and seek out as many scholarships and grants as they can before choosing this loan.
- The school applies the college money from this loan to the student’s school account to cover tuition, fees, room and board and other costs of the student’s college education. If there is some outstanding loan money, the parent can request that the school holds the funds or releases the money to the student. If you receive these funds, they must go toward your school costs.