Federal Parent PLUS Loans, in Plain English | 03.01.10

Posted in FAFSA, Financial Aid By Evan Jacobs

The Parent PLUS Loan, a lending option through the federal government for students, is one of the less understood and often forgotten funding methods for education.

Mother and Daughter

What is a PLUS loan? The Parent PLUS Loan is a lending program designed differently than other federal loans to cover more expenses than Stafford or Perkins loans, up to full cost of attendance. In addition, as the name implies, a parent or legal guardian is the only person that can take out this type of loan. The maximum borrowing amount is determined by the following formula:

Amount You Can Borrow = (Total Cost of Attendance) – (Awarded Federal Need-based Aid)

Essentially, the school tells the government how much it costs to go there (with reasonable margins for books, etc.) and whatever loans or grants you receive from filing your FAFSA are deducted from that total amount. Also, it is important to note that the PLUS loan is not a need-based program, so it is subject to a credit check. A PLUS loan is similar in operation to a private student loan, but has lower fixed interest (in most, but not all cases) and more generous repayment terms.

How does it work? First, there are two potential sources of Parent PLUS loans: the Direct Loan program, and the Federal Family Education Loan Program (FFEL). The major difference between the two are interest rates, fees, and who you pay back. The condensed version of the story is FFEL usually is more expensive for the student than the same product from Direct Loan.

At this point, you’re probably wondering why anyone would want to use FFEL for loans if they end up costing more (I know I did) — the answer is it isn’t a choice. Each college decides whether or not they want to be a Direct Loan or FFEL school, and the difference is often dictated through soft benefits and relationships between the school and lenders. So unfortunately, you don’t really have a choice and must go with what the school offers. That being said, there have been a lot of studies, blogs, and commentary that point toward FFEL lenders as being more forward about educating their borrowers about the real costs of education and doing everything in their power to prevent delinquencies and defaults during repayment.

The last difference between the two programs is to whom you send your checks. Direct Loan is funded and maintained by the US Department of Education, so you are directly borrowing your money from the federal government. FFEL is actually maintained by third-party lenders such as Discover Student Loans, and your money goes to them upon repayment.

What is the benefit of a PLUS Loan? A PLUS Loan can be a valuable method of bridging the gap between federal aid and total cost of attendance. More often than not, your federal award package, based on your FAFSA application, will not be sufficient to entirely cover your school expenses.

What does one cost? FFEL has a higher fixed interest rate of 8.5% for PLUS loans, where Direct Loans are currently set at 7.9% APR. Also, FFEL typically has higher fees than Direct Loans, up to 4% of the total loan amount. Like an unsubsidized Stafford loan, interest begins to capitalize or build right after the funds are sent to your school. You have the option to begin paying it off immediately, or you can postpone for either 2 months from the last disbursement, up to 6 months after the student’s graduation.

The PLUS loan is limited in some ways, because it is restricted to being taken out by a parent or legal guardian. If you are an older student, or just don’t have a solid relationship with your family, the PLUS loan just may not be the right solution. If you still need money for your education, and this type of lending is unobtainable, check out a private student loan, which is a little less restrictive, at the cost of being more expensive in the long run.

One last thing — if you are an undergraduate student, or a parent seeking one, you do not have to file a FAFSA to qualify for a Parent PLUS Loan. It is highly recommended, but not required. However, if you are a graduate student, a FAFSA is required to qualify for a PLUS loan.

ScholarshipPoints Point Code: PLUS2010


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24 Responses to “Federal Parent PLUS Loans, in Plain English”

  1. jody spinuzzi says on September 30, 2010 at 10:50 pm:

    I have had a fed parent plus loan for 2 years.My grade point is is good.I dont graduate for 3 more years.And i have only 6 more months to get my associates then i am off to my bachelors program.why are you taking it away?

    Reply To This Comment
  2. kelly says on June 26, 2010 at 11:52 pm:

    why do parent need to fill out a parent loan if thestudenthas a unsudsibized loan and a sudsibizes to please help

    Reply To This Comment
  3. Fed UP says on April 25, 2010 at 12:33 am:

    I wish this information was available when I applied for a Parent Student Loan in 2005 and 2006. I was conned into believing that I had a Federal Student Loan, but when in repayment, I found out that my Federal Student Loan was turned into a Sallie Mae Private Loan. Take it from me, stay away from Sallie Mae! They are nothing but loan sharks and have the ability to change a federal student loan to a private student loan. My life is a living "hell" because of this fact.

    Reply To This Comment
    • tore says on March 11, 2013 at 8:32 pm:

      this just happened to me. Does it still mean i have the fixed 7.9% interest.

      Reply To This Comment
      • Student Loan Guru says on March 12, 2013 at 9:43 am:

        Sallie Mae is also a federal student loan servicer, meaning they do not necessarily own federal loans, but do manage them on behalf of the government. Is it possible that Sallie did not buy them, but rather, is your servicer?

        If it turns out that this is the case for you, your 7.9% interest rate would still be aplicable, along with all other Parent PLUS Loan benefits.

        If your loans are in fact owned by Sallie Mae, I’d suggest contacting them immediately for more information on any repayment changes.

  4. Charles G says on April 14, 2010 at 12:42 am:

    nice information about loans…

    Reply To This Comment
  5. SNemo says on April 12, 2010 at 1:21 am:

    Very helpful. Its good to learn the differences.

    Reply To This Comment
  6. dain says on April 9, 2010 at 5:52 pm:

    why didn't i get a plus loan from one of my colleges when another college did??

    Reply To This Comment
  7. Tyra says on March 31, 2010 at 2:40 pm:

    hthis is very informative

    Reply To This Comment
  8. Reko says on March 16, 2010 at 6:02 am:

    Its definitely something to think about.
    thanks

    Reply To This Comment
  9. michele says on March 12, 2010 at 7:27 pm:

    great info thanks so much

    Reply To This Comment
  10. Mariana says on March 12, 2010 at 11:49 pm:

    NOT HAVE TO FILE A FAFSA! Wow this must be really helpful for those who know that they won't get any benifits from FAFSA either way. This way they don't have to go into the trouble of putting it together and worry about submitting it before a certain deadline like some ask for. :D

    Reply To This Comment
  11. Angelica says on March 9, 2010 at 9:57 pm:

    Good information to know!

    Reply To This Comment
  12. Laurie says on March 5, 2010 at 5:08 am:

    This blog definitely explains in plain english the information needed to understand Federal Parent PLUS Loans. Thank you for the information.

    Reply To This Comment
  13. shannon says on March 3, 2010 at 9:16 pm:

    thanks for the information. it is very helpful.

    Reply To This Comment
  14. Coka says on March 3, 2010 at 9:14 pm:

    Ima tell my mom about it

    Reply To This Comment
  15. Rachel Richardson says on March 3, 2010 at 4:59 am:

    GOOD INFORMATION I PASS IT ON TO MY FRIEND TO READ

    Reply To This Comment
  16. amanda says on March 3, 2010 at 12:38 am:

    Very useful information. I will look into this.

    Reply To This Comment
  17. Adam says on March 2, 2010 at 9:53 pm:

    thanks for the info, very useful

    Reply To This Comment
  18. maira says on March 2, 2010 at 6:59 pm:

    good information

    Reply To This Comment
    • Marivaldo says on November 23, 2012 at 4:09 pm:

      With the economy the way it is he will be lucky to get a peasnorl loan with a bankruptcy we tried to refinance our house but because of my husbands bankruptcy we couldn’t and I have exceptional credit but house is in both our names -Nice spam question -

      Reply To This Comment
  19. Mary says on March 2, 2010 at 3:50 pm:

    GOOD INFORMATION ABOUT LOANS

    Reply To This Comment
  20. Brittany says on March 1, 2010 at 6:25 pm:

    My mom had a parent plus loan because we couldn't cover the cost of the gap between financial aid and my stafford loans and it helped out so much!

    Reply To This Comment

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