PLUS Loans for Parents
- Fixed interest rate - 7.21%
- Borrow up to the cost of education
The Federal PLUS Loan is a loan option for parents with dependent children to help pay for their child's educational costs.
Parents can borrow up to the cost of attendance minus any other financial aid the child is receiving. For instance, if the cost of attendance is $25,000 for the year and the child has a scholarship of $5,000 toward the school, the parent can borrow up to $20,000.
Applying for a PLUS Loan
The parent or borrower must submit a PLUS application (available from the school) to the financial aid office at the child's school.
The interest rate for Direct PLUS Loans is a fixed rate of 7.21%.
Eligibility requirements for a Direct PLUS Loan for parents include:
- The parent must be the student's biological or adoptive parent. Stepparents can also act as the borrower in certain circumstances. For instance, if a widowed biological parent was remarried, then the stepparent could act as the borrower.
- The parent must pass a credit check. If the credit check is not passed, the parent can have a friend or relative with good credit history endorse the loan (similar to a cosign).
- The student must be a dependent and enrolled at least half-time in school.
Receiving the Loan
In most cases, the loan will be disbursed in two installments - one for the fall semester, and one for the spring. Funds are sent directly to the student's school and are typically used to pay the child's tuition and fees first. If any loan money remains, the borrower receives that amount, unless he or she authorized a release to the child's account. Schools must notify parents when funds are credited.
Canceling the Loan
The school must notify the borrower in writing when it credits the account with the loan proceeds. This notification must be sent to the borrower no earlier than 30 days before and no later than 30 days after the school credits the account. Borrowers can cancel all or a portion of the loan by informing the school within 14 days of receiving this notice, or by the first day of the payment period.
Currently, the Federal Direct Loan Program (FDLP) charges a 4% origination fee for all new PLUS loans created after July 1, 2010. This will be added to the loan repayment amount and is not required immediately upon signing the Master Promissory Note.
The loan servicer will arrange a repayment schedule. Borrowers have up to 25 years to repay the loan (depending on the chosen plan), and must pay at least $50 a month. Repayment of principal and interest begins 60 days after the loan is fully disbursed, or parents now have the option to defer payments while the child is in school. Parents can opt to let the interest accrue until the student leaves school. However, any interest that accrues from the date of disbursement is added to the outstanding loan balance through a process called capitalization.
To lower monthly payment amounts or to simplify their finances, parents have the option to consolidate PLUS Loans through a Direct Consolidation Loan, available from the Department of Education.
Graduate students are also eligible to borrow through the PLUS Loan program.