PLUS Loans

Student Loans - PLUS Student Loans

The PLUS loans program (Parent Loans for Undergraduate Students) was designed to close the gap between the rising cost of education and the amounts available through traditional Stafford loans, which often fail to cover the majority of expenses. PLUS loans are credit based student loans, not need based. Although the interest rate paid is higher, the cap on the amount that can be borrowed is much more flexible.

The interest rate for the FFEL (Federal Family Education Loan) program, in which private lenders fund the loan, is 8.5%. The U.S. Dept of Education funds the loan directly at 7.9% through the Direct loan program. That difference of 0.6% can be substantial over the lifetime of the average loan. In the first year alone, on a 10-year loan of $25,000 it amounts to approximately $130 in interest. For an exact calculation, use our mortgage loan calculator.

With PLUS loans, parents can borrow up to the total cost of education, minus any other financial aid amount the student is awarded. Though PLUS money may cost more than other options, it can make a big difference when choosing which school to attend or whether to attend at all.

Since PLUS loans are not need-based, they do require a credit check. With one exception listed below, the student's credit is not considered. Since the parents are the signers of the promissory note and ultimately responsible for payment of the loan, it is their credit history that is evaluated.

In those rare cases where the credit history of the parent(s) makes them ineligible, a co-signer can participate in the loan. What that means is that a relative or other party can agree to guarantee repayment and take on the legal responsibility of the loan as a co-borrower. With the recent difficulties in the sub-prime borrowing arena, cases where parents do not qualify are more frequent.

A recent change to the program allows professional and graduate students to qualify for PLUS loans. The same interest rates and eligibility criteria apply. Like other students, professional and grad students must be enrolled in an eligible institution and program at least half-time.

Unlike many Stafford loan programs, repayment of PLUS loans begins right away, typically within 60 days after the loan funds are issued. Interest begins to accumulate from the time the first disbursement is made and principal and interest is paid in regular monthly installments. These payments are made to the private lender in the case of FFEL (Federal Family Education Loan) loans and to a U.S. Dept of Education servicing center in the case of Direct loans.

As with all loans, be sure to calculate carefully all the costs associated with obtaining a PLUS loan. You may see it as a loan of last resort. Even a home equity loan, for example, can sometimes be less expensive, since the interest is tax-deductible. Doing your homework always results in the best choice.

Find more information about PLUS loans, Stafford loans and other student financial aid options here.

latest news Grants, scholarships, work-study and other forms of gift aid just do not cover the full cost of a college education. Many students find that they must supplement their savings with government and private loans. The Federal education loan programs offer lower interest rates and more flexible repayment plans than most consumer loans, making them an attractive way to finance your education. You can also deduct up to $2,500 in student loan interest even if you don't itemize deductions on your income tax return. ~ Finaid.org

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