PLUS is an acronym for Parental Loans for Undergraduate Students, and PLUS lenders are financial institutions such as banks or credit unions. Money for PLUS loans comes from the same institutions that provide funds for the Stafford Loan program. However, an important overall distinction must be made between the two loans: a PLUS is paid directly to parents, while the Stafford Loan program considers students the primary borrowers. PLUS lenders loan money to parents who wish to borrow, regardless of need, in order to help them finance a dependent’s college education.
Key Characteristics:
- Loans must be repaid
- Banks, credit unions, savings, and loans act as lenders, as well as the federal government through the Direct Loan program
- Insured by lender and re-insured by the state and federal government
- Interest rate is variable. Three-month Treasury Bill rate plus 3.1 percent adjusted annually every July 1; cannot exceed 9 percent. Unsubsidized; accrues interest while the student is in school
- A 4.276 percent fee is charged each time a payment is made
- Apply as soon after January 1 as possible
Note: Terms change periodically.
How do Parents Determine their Eligibility?
- Have a legal dependent enrolled in school at least half-time
- Be the legal guardian or natural or adoptive parent of the student receiving aid
- Not have defaulted on any previous student loans
- Undergo a credit check to determine approval rating
- Parents and dependent students must be U.S. citizen or eligible non-citizens
How Much Can Parents Get?
The amount of money parents can borrow through the PLUS program is contingent on how much federal financial aid you as a student have already received. Parents can receive enough money to cover the entire cost of their child’s education, minus any other federal student aid already received. For example, if your college costs are $18,000 total for one year, and you have received a Stafford loan for $3,000, your parents would qualify for a PLUS in the amount of $15,000 to cover the remaining costs.
Getting Started
Contact your own bank or another local lender to determine whether they issue these types of federal loans. Upon finding a lender, it is important to ask about the insurance fee (up to 4 percent) charged by many lenders. After carefully completing the application, return it promptly to the financial aid office. They will fill out their part and transfer it to your lender for processing. Final approval is given by the lender, and it usually takes between five and ten business days to process the application.
TIP…PLUS borrowers who are not eligible for deferment can apply for forbearance as long as they are willing to make loan payments but cannot afford to do so. Contact the organization carrying your loan for more information.
Disbursement
After signing a promissory note, the lender sends a check by computer, made payable to both your school and the parents, to the financial aid office. This speeds up the entire disbursement process and saves recipients from waiting for loan payment by mail. Payments will be made to parents at least twice during the year, and if the lender agrees borrowers may receive them every week or month. The total amount of each disbursement will never be more than half of the entire amount of the loan and it will always be paid in equal installments.
Payment Terms
TIP…There is no thirty-day waiting period for first-time PLUS Loan borrowers. Payment is received immediately, according to the school’s financial aid disbursement methods.
Loans have a variable interest rate set each year in July, with a cap. The organization carrying your loan must notify you of the new rate. If you have a PLUS that was disbursed to you before that date, contact your lender for the current interest rate. Along with the interest and principal payments, parents must also pay a 4.276 percent origination fee for loans disbursed after the above date. This fee and the insurance premium (up to 3 percent) collected by the lender will be deducted from each disbursement in equal amounts.
With the PLUS program, there is no grace period before repayment begins because interest starts accumulating immediately. Parents have only sixty days from when the loan is first disbursed to begin making payments.
Payment Plans
TIP…The Department of Defense may repay a portion of your parent’s PLUS Loan as an incentive for you to enlist. Contact a local recruiting officer for more information.
As with Stafford Loans, several repayment plans are available, including the Standard, Extended and Graduated Repayment Plan. The Income-Contingent Repayment Plan is not available for Direct PLUS Loans (view PLUS Loan repayment options here). With FFELP PLUS Loans, repayment arrangements are made with the lending institution. FFELP PLUS Loans can be repaid over a period of 10 years or 25 years, with a minimum annual payment of $600. If the loan is sold during the process of repayment, borrowers will be notified by both the old and new organizations and given new payment instructions.
Deferment of PLUS Loans
Parents do have the option of applying for a deferment with the PLUS Loan program. Deferments apply only to the principal balance of the loan, not the interest. If granted deferment, borrowers will most likely have to continue making monthly interest payments. Some organizations carrying loans will allow borrowers to postpone interest payments until deferment ends, but this increases the amount of the principal balance.
To apply for deferment, you must contact the agency that is carrying your loan. Eligibility for postponement depends on the current status of the loan and the date it was first disbursed.
Deferment is granted for a child’s study in a graduate or fellowship program. In addition, up to three years of deferment may be granted for parents’ economic difficulties and a parent’s inability to find full-time employment. The loan must not be in default to be eligible for deferment. An application is obtained from the company carrying the loan and resubmitted every twelve months.
TIP…Prior to requesting a PLUS application, it is important that you as the student make an effort to apply for all other available aid. With the PLUS loan, interest starts accumulating following disbursement, and your parents will begin repayment on the loan sixty days after it has been issued.
The repayment of a PLUS can be canceled or forgiven, but only under very specific circumstances. If your parents are deceased, have become permanently disabled, or have filed for bankruptcy, contact the company that carries your loan for cancellation details. Remember, any questions you have concerning repayment, deferment, cancellation, or interest rates with your PLUS should be directed to the organization carrying your loan and not the Department of Education.
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