What Is a PLUS Loan?
Federal loans for higher education, commonly referred to as direct PLUS loans or PLUS loans, are available to parents of undergraduate, graduate, and professional students as well as graduate students. PLUS stands for Parent Loan for Undergraduate Students.
In the same way as federal student loans, PLUS loans are provided by the U S. Department of Educations William D. Ford Federal Direct Loan Program. Since the government is the lender, these loans are referred to as “direct” loans.
- PLUS loans are federal loans available to graduate and professional students as well as parents of college students.
- You can borrow up to the entire cost of college with a PLUS loan, deducting any additional financial aid.
- PLUS loans, like federal student loans, come with a range of adjustable repayment schedules.
How a PLUS Loan Works
Students must be enrolled at least half-time in a school that takes part in the Federal Direct Loan Program in order for their parents to be eligible for a PLUS loan.
The educational institution uses the money from the PLUS loan to cover costs like tuition, room and board, and fees. Any money that is left over is given to the parent or student directly.
For the duration of their terms, PLUS loans have a fixed interest rate. Loans disbursed prior to July 1, 2024, but on or after July 1, 2023, for instance, have an interest rate of 8. 05%.
Due to the economic crisis in 2020, federal student loan payments and interest were suspended. Loan payments and interest resumed in October 2023.
How to Qualify for a PLUS Loan
Students and their parents must complete the Free Application for Federal Student Aid (FAFSA) in order to be eligible for a PLUS loan. The parent must also pass a standard credit check. Students can also apply for PLUS loans on their own behalf if they are enrolled in an eligible school and pursuing a graduate or professional degree. Instead of being referred to as parent PLUS loans, these loans are frequently called grad PLUS loans.
The student must be a dependent of the parent—biological or adoptive—or, in certain situations, a stepparent or grandparent—in order to qualify for a parent PLUS loan. In order to be eligible for student aid, parents and students must both fulfill the general requirements, which include being U S. citizen or lawful permanent resident, and neither parent’s credit record can be negatively impacted.
If the parent can get a loan endorser or provide mitigating circumstances for their low credit score, they might still be eligible even if they have a bad credit history. Children may be qualified for student loans with higher limits if their parents are not eligible for a PLUS loan.
The eligibility requirements for Grad PLUS loans are the same, but they only apply to students.
Pros and Cons of PLUS Loans
- Parents may borrow the whole cost of a student’s education: Parents may borrow the whole cost of a student’s undergraduate education, less any additional financial aid the student may be eligible for. This covers books, fees, room and board, tuition, and other associated costs.
- No matter their level of financial need, borrowers can apply for a PLUS loan; they are not required to provide proof of need.
- Fixed interest rates, which are relatively low for PLUS loans, ensure that there is no risk of interest rate increases during the loan’s term until it is fully repaid. Although they are not as low as those on federal student loans, PLUS loan rates are still quite low.
Cons
- In order to be eligible for a PLUS loan, parents must typically pass a credit check. While having excellent credit is not a requirement for approval, having a fairly clean credit report is if you want to be eligible.
- The government levies a loan fee, which is subtracted from each payment you get for loans that are advanced on or after October 1, 2020, and before Oct. 1, 2024, is 4. 228%. When the loan is due, you are required to return the full amount borrowed, including those fees.
- The loan balance cannot be transferred to the child, even if they have the resources to repay it. Parents are ultimately liable for making loan repayments. Furthermore, in contrast to a Sallie Mae loan, parents who experience a child’s total permanent disability (TPD) will not have their loan balance forgiven.
- Parents are able to borrow the whole amount required for their child’s education.
- PLUS loans are available to borrowers regardless of their level of financial need.
- PLUS loans come with relatively low, fixed interest rates.
- A credit check is typically required for parents to be approved for a PLUS loan.
- The government charges a loan fee.
- Parents are permanently responsible for repaying the loan.
You can defer repaying your PLUS loan until after the student graduates by requesting a deferment.
Repaying PLUS Loans
Normally, once the full loan amount has been disbursed, payment on a PLUS loan must start. You have two options: ask for a deferment or begin loan repayment while the student is still enrolled in classes. You won’t be responsible for payments while the student is enrolled at least half-time under a deferment, or for an extra six months following the student’s graduation, leave of absence, or enrollment declines below half-time.
Nevertheless, interest will keep accumulating during that period and be applied to the loan balance. For parent PLUS loans, the Department of Education provides a number of repayment options, such as:
- Standard repayment plan: For a maximum of ten years, you make set monthly payments under this plan. Consolidating multiple parent Plus loans allows you to extend the repayment period to a maximum of 30 years.
- Plan for graduated repayment: Under this arrangement, you will repay your loan over a maximum of ten years. But instead of being set in stone, your payments will begin small and rise every two years.
- Extended repayment plan: This plan lets you pay off your loans over a 25-year period with either fixed or graduated payments. It is available to borrowers who owe more than $30,000 in direct loans.
Borrowers may have other options when it comes to grad PLUS loans, such as income-driven repayment plans, which determine the monthly payment based on the borrower’s income and family size. Grad PLUS borrowers typically have between 10 and 25 years to repay their loans, depending on the plan they select.
What Does the Acronym in PLUS Loan Stand for?
Parent Loan for Undergraduate Students is what the “PLUS” in the name of these federal loans for higher education stands for.
Do the Parent Have to Pay Back a Parent PLUS Loan?
Yes. You as a parent cannot transfer a Direct PLUS Loan to your child. You are responsible for repaying the loan. However, in certain situations, you might be granted a deferment or forbearance, allowing you to temporarily cease or reduce your payments.
How Does a Grad PLUS Loan Differ From a Parent PLUS Loan?
Instead of having their parents borrow the funds for their education, graduate and professional students can use Grad PLUS loans to borrow money for their own education. Up to the entire cost of attendance, graduate students can use grad PLUS loans to pay for any expenses not already covered by grants or other forms of financial assistance. Graduate students are not limited in the total amount they can borrow.
The Bottom Line
PLUS loans are federal direct loans available to graduate and professional students as well as parents of college students. You can borrow up to the entire cost of college with a PLUS loan, deducting any additional financial aid. Like other federal student loans, PLUS loans have a range of adaptable payback schedules. Remember that while PLUS loan interest rates are generally low, they are not as low as federal student loan interest rates. Article Sources: Investopedia mandates that authors cite original sources to bolster their claims. These consist of government data, original reporting, white papers, and conversations with professionals in the field. When appropriate, we also cite original research from other respectable publishers. You can read more about the guidelines we adhere to when creating impartial, truthful content in our
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FAQ
How does PLUS loans work?
Parents of dependent undergraduate students or graduate or professional degree candidates may apply for federal Direct PLUS loans to assist with the cost of their children’s education. Since Direct PLUS loans are not subsidized and have a fixed interest rate, interest is accrued while the student is enrolled in classes.
What are the disadvantages of a PLUS loan?
Repayment of the PLUS loan is the parent’s responsibility, not the student’s. Not all of the income-driven repayment plans available to student loans apply to PLUS loans. Because PLUS loans have high borrowing limits, taking on excessive debt is possible.
Do you have to pay back PLUS loans?
You as a parent cannot transfer a Direct PLUS Loan to your child. You are responsible for repaying the loan. Is it possible for me to receive a deferment or forbearance under certain circumstances, allowing me to temporarily stop or lower my loan payments?
What is the difference between direct and PLUS loans?
Mainly, they are more expensive. Direct PLUS Loans have an interest rate of 8. 05% for the 2020–22–24% school year for all borrowers, in comparison with 05% for Direct Unsubsidized Loans for grad students. They also have a loan fee equal to 4. 228% of the principal, or four times the amount required for an unsubsidized direct loan
Read More :
https://studentaid.gov/understand-aid/types/loans/plus
https://www.investopedia.com/terms/p/plus-loan.asp