Education Adds Up with a PLUS Loan

Plus sign on caculator magnifiedThe plus in the PLUS loan technically stands for Parent Loan for Undergraduate Students. It’s a bit of a misnomer with the implementation of the 2006 law changes because graduate students can also apply for PLUS student loans now though there are different repayment terms compared to loans made for undergraduate education expenses. As a result these types of education loans are now usually referred to as the Parent PLUS Loan or the Grad PLUS Loan. Other than the start of the repayment terms, the loans are quite similar, and they provide parents a way to fill a financial gap when it comes to paying for college for their children.

Getting Smart with Parent Plus Loans

There is a variety of student loans available to help pay for education, and they are broadly categorized as federally subsidized or non-subsidized. The passage of the Health Care and Education Reconciliation Act of 2010 (HCERA) changed the Federal Family Education Loan program (FFEL) to all subsidized. That means the only non-subsidized loans available today are the private loans you apply for on your own through a private lender.

Unlike the Stafford loans, PLUS loans are the responsibility of the parents. Either the students or parent can apply for a PLUS loan but the parent is the responsible payer. Parent Plus Loans can also be used for either the parent’s or their children’s education expenses. Because the PLUS loans are all federally subsidized through the Direct Loan program, the application process begins in the financial aid office of the college or university of attendance.

Paying My Way to a Degree…

The maximum amounts of the federal PLUS student loans allowed are based on the cost of attendance less any other approved financial aid. There is a good credit requirement though. The person responsible for the loan must not have an adverse credit history. But even if you have bad credit parents PLUS loans applicants may provide explanation of the circumstances surrounding the adverse credit and request a waiver. Another option is to add a co-signer with a good credit history to the loan.

The money from the student PLUS loans can be used for all education related expenses including room and board, tuition, and fees. If the loan amount exceeds the expenses for any reason, then the balance is distributed to either the parents or the student. If the PLUS student loans were given to students, then the net amount is returned to the students. If the loan is given to parents, then they will get the money.

The interest rate on the loan is fixed and will accrue over the life of the loan even while the student is still in school. Even if the repayment is deferred, the interest will accrue and have to be repaid.

Degree in Hand Means Time to Start Repaying

Technically according to the law, the repayment must begin within 60 days after the loan proceeds have been fully disbursed. But payment can be deferred if the student is still in school. Unlike the Stafford parent PLUS loans for graduate students require repayment start within 60 days. On the other hand, undergraduate students can defer payment while still in school and even if the credit load drops below what is considered full enrollment. Graduates can also request a 6 month grace period before repayment starts.

The PLUS loan is a great option to consider when you need additional school funding. It is usually considered the last resort type of financial aid though because it must be repaid and has a higher interest rate than the Stafford loan. As the cost of getting a degree continues to rise, this loan often provides the amount needed to make attending college possible.