A PLUS loan, also known as a Parent Loan for Undergraduate Students, is a type of federal student loan that is available to the parents of dependent undergraduate students. This loan is designed to help cover the cost of education expenses that are not covered by other forms of financial aid, such as grants, scholarships, and other loans.
Who is eligible for a PLUS Loan?
In order to be eligible for a PLUS loan, the student must be enrolled at least half-time in an eligible program at a participating school. The parent borrower must also meet certain eligibility requirements, including having a good credit history and not being in default on any other federal student loans.
How much can be borrowed with a PLUS Loan?
The maximum amount that can be borrowed with a PLUS loan is the cost of attendance minus any other financial aid received. This includes tuition, fees, room and board, books, and other education-related expenses. Unlike other federal student loans, there is no set limit on the amount that can be borrowed with a PLUS loan.
What are the interest rates and fees for a PLUS Loan?
The Department of Education determines the fixed interest rate for a PLUS loan each year. As of 2021, the interest rate for a Direct PLUS loan is 6.28%. In addition to the interest rate, there is also an origination fee of 4.228% for loans disbursed on or after October 1, 2020, and before October 1, 2021. This fee is deducted from the loan amount before it is disbursed to the school.
How does repayment work for a PLUS Loan?
Repayment for a PLUS loan typically begins within 60 days after the loan is fully disbursed. However, parents have the option to defer repayment while the student is enrolled at least half-time and for an additional six months after the student graduates or drops below half-time enrollment. There are also various repayment plans available, including standard, extended, and income-driven plans.
What are the benefits of a PLUS Loan?
One of the main advantages of a PLUS loan is that it can assist in paying for educational costs not covered by other types of financial aid. This can be especially helpful for families who may not qualify for need-based aid but still need assistance paying for college. Additionally, PLUS loans have a fixed interest rate, which means the rate will not change over the life of the loan.
What are the drawbacks of a PLUS Loan?
One potential drawback of a PLUS loan is the higher interest rate and origination fee compared to other federal student loans. This can result in a higher overall cost of borrowing. Additionally, since the loan is in the parent’s name, they are solely responsible for repayment, which can be a burden for some families.
How to apply for a PLUS Loan?
To apply for a PLUS loan, the parent borrower must complete the Free Application for Federal Student Aid (FAFSA) and then complete a PLUS loan application on the Federal Student Aid website. The parent will also need to complete a Master Promissory Note (MPN) and undergo a credit check. If the parent is approved, they will receive a disclosure statement outlining the loan amount and terms.
Conclusion
A PLUS loan can be a valuable tool for parents looking to help their child pay for college. It has a fixed interest rate and can pay for educational costs not covered by other forms of financial aid. However, it is important for parents to carefully consider the potential drawbacks and their ability to repay the loan before taking on this financial responsibility.
