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Funding your Education with Federal Financial Aid: Federal PLUS Loans
by Brooke Heath

Though they are a federal loan, Parent Loans for Undergraduate Students ("PLUS loans") are almost entirely different from the other loans in the federal loan family.

For starters, PLUS loans are not taken out by students, but by the parent(s) of the student. This is an option for parents whose student is a dependent undergraduate student and is enrolled at least half-time in an eligible program at an eligible school. The parent is the one who is responsible to repay the loan, not the student.

These loans are a great option for parents who want to help their children pay for their schooling, but need a little help in doing so. PLUS loans are a great alternative to credit cards or home equity loans because of their low interest rates and backing from the federal government.

These loans are available through the Federal Family Education Loan ("FFEL") Program as well as through the William D. Ford Federal Direct Loan ("Direct Loan") Program. Borrowers have the option of taking out either loan, but not both. Generally, the loan will be disbursed in a minimum of two installments directly to the student's school.

PLUS loans also differ from other federal student loans in that they require parents to pass a credit check. If they are unable to do so, they may bring a credit worthy cosigner onto the loan with them. However, in certain cases, if potential borrowers can demonstrate that extenuating circumstances prevent them from passing the credit check, they may be able to qualify for the loan without a credit check.

In addition, unlike any other federal student loans, PLUS loans have fees attached to them. Parents will pay a fee of up to four percent of the loan. A portion of this fee will be deducted each time a loan disbursement is made. The purpose of the fee is to help reduce the cost of federal loans. There may also be an additional fee charged for late payments.

Finally, PLUS loans do not have the benefit of grace periods. Parents must generally start to repay the loan within 60 days after the loan is fully disbursed. Payments will include both principal and interest. The interest will begin to accumulate at the time that the first disbursement is made to the school.

Although PLUS loans do not come with all the normal benefits that federal loans usually offer, they do offer deferment and forbearance options. These options allow borrowers to temporarily suspend monthly payments during financial hardships that hinder their ability to make payments on the loan. However, because PLUS loans are not subsidized, the borrower will be responsible for the interest that accrues during this period of time.

Interest rates

The interest rate for PLUS loans disbursed on or after July 1, 2006 is 7.90% for Direct PLUS loans and 8.50% for FFEL loans. For PLUS loans disbursed between July 1, 1998 and June 30, 2006, the interest rate is currently at 7.94%. The interest on a PLUS loan is charged from the date of the first disbursement until the loan is paid in full.

Loan Limits

The yearly limit that a parent can borrow on a PLUS loan is equal to the cost of the student's attendance, minus any other financial aid that he or she receives. For example, if the student's yearly cost of attendance is $10,000 and he or she receives $3,000 in scholarships and grants, then the parents may borrow up to $7,000 for that year.

How to Apply

Directions on applying for a PLUS loan depend on whether the prospective borrower is seeking a Direct PLUS loan or a FFEL PLUS loan. To apply for a Direct PLUS loan, parents must complete a Direct PLUS loan application and promissory note, which can be picked up from the student's financial aid office. To apply for a FFEL PLUS loan, the parents must complete a PLUS loan application that can be obtained through the lender, the school or the borrower's state guaranty agency.

Consolidation of PLUS Loans

Because parents are allowed to take out separate loans for each child and for each year that he or she is in school, they may accrue multiple loans. A huge benefit of PLUS loans is that they are eligible for a federal student loan consolidation.

Consolidation can bundle multiple federal student loans into one, easy-to-handle loan. With this loan, there is only one monthly statement, and one low monthly payment made to just one lender. This eliminates the hassle that can come from making multiple payments to multiple lenders each month.

Also, when borrowers consolidate with EdFed, they can save thousands of dollars over the life of their loan, and even lower their monthly payment by almost half!

As an industry leader, EdFed is dedicated to helping students achieve their educational goals and manage their student loans.

More Information

For more information on PLUS loans and other federal financial aid, read the other articles that EdFed has to offer on our website, or visit the federal government's student loan website.


Article Title : Funding your Education with Federal Financial Aid: Federal PLUS Loans
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