PLUS Loan

Parents invest a lot in their children for a lifetime of benefits. For a higher education, parents of dependent students are considered to be the primary responsible party for financing an education under federal formulas. Besides providing information for determining financial aid eligibility, one parent or both may borrow a PLUS Loan to help pay school charges and related expenses. Stepparents may also qualify. The student must be a dependent under financial aid definitions for the parent to borrow. Your parent must also meet some general eligibility requirements such as being a U.S. citizen or eligible noncitizen and not be in default on a student loan.
  • The interest for a PLUS Loan is variable and may change each July 1. The maximum interest rate is 9%.
  • Your parent normally has up to 10 years to repay the loan, but there are some repayment plans that may give your parent more time depending upon the amount borrowed. However, it costs more for longer plans.
  • Scheduled payments will not be lower than $50 per month and begin just after the PLUS Loan is fully disbursed.

You must be enrolled at least half time in an eligible academic program for your parent to take out a PLUS Loan. Your school may require you to complete the Free Application for Federal Student Aid (FAFSA) before processing a PLUS. There is no set limit on the amount. Your parent may borrow up to the amount of the cost of attendance, as determined by the school, less the other financial aid and resources you have for paying your school charges and related expenses. For example, if the cost of attendance (school charges, book & supplies, and living expenses) for an academic year is $10,000 and you have other aid for $6,000, your parent may borrow up to $4,000.

A credit check is required for your parent to borrow a PLUS Loan. It is not a credit analysis, but a check to see if there are any adverse credit notations in the credit report. If there are late payments or other negative comments, then the PLUS Loan may be denied. If your parent is ineligible, an endorser who backs up the loan may be required, or you may check with your school to see about borrowing additional unsubsidized amounts for a Stafford Loan.

Your parent must apply and promise to repay the loan on an Application/Promissory Note, normally sent to you or your parent or obtained in your financial aid office, before loan funds will be disbursed. Check out the schools' websites or financial aid materials to see how PLUS App-Notes are handled.

Like Stafford Loans, there are two federal programs with PLUS Loans.
  • Under the Federal Family Education Loan Program (FFELP), the loans are called Federal PLUS Loans. Banks, credit unions, and other lenders make the loans under FFELP. Your parent repays the bank or other lender. Lenders participate in FFELP because they are able to get guarantees on the loans. The designated guaranty agency for Virginia is Educational Credit Management Corporation (ECMC).
  • Under the William D. Ford Federal Direct Loan Program, the loans are called Direct PLUS Loans. Funds are provided from the federal treasury. You repay the federal government through the U.S. Department of Education's loan servicer.
  • Both programs have the same terms and conditions except for a few differences in repayment plans. You or your family are also protected from having to repay the loans in the event of death, disability, and other unfortunate circumstances.
  • Your school may participate in one or both programs. See their websites or financial aid materials for specific information.

The federal government charges an origination fee to take out PLUS Loans. A guaranty agency may charge up to 1%, but the fee is not currently being charged. The total amount is currently 3% for both FFELP and Direct Loans. For example, if your parent borrows $2,000, an amount of $60 is deducted from the loan, and your parent actually receives $1,940. Your parent still repays $2,000. For this amount, the monthly payment would be the $50 minimum for about 4 years at 9% interest. If your parent borrows $10,000, the payments would be $126.68 for 10 years. If the variable interest rate is not at the maximum of 9%, the payments may be slightly lower.

If you are enrolled for two terms, then the PLUS Loan is normally disbursed ½ for the fall, and ½ for the spring. If you are enrolled in three quarters, then it is normally disbursed in thirds.

Some parents research borrowing home equity loans to help finance a higher education. It is a good idea to compare the overall benefits of home equity loans and PLUS Loans. There are benefits both ways.