What Is A PLUS Loan?

A parent PLUS Loan is a loan that a parent or parents of a full time undergraduate student takes out to help the student pay for the student’s college education. Your parents fill out a PLUS Loan application, which is available from the school’s financial aid office.

This type of loan is available through both the FEEL and the Direct Stafford Program. Parents must have an acceptable credit history, which will then permit them to borrow monies with a PLUS Loan for their dependent student enrolled at least half time in an eligible program or school.

For your parents to be eligible to receive this loan, they must pass a credit check. They cannot be turned down for having no credit history, only for having an adverse one. If your parents do not pass the credit check, they may still be able to receive a PLUS Loan if someone such as a relative or a friend is able to pass the test and agree to endorse the loan.

An adverse credit history is determined by being more than 90 days late on a debt payment, having any Title IV debt within the past five years, bankruptcy discharge, foreclosure, repossession, tax lien, and wage garnishment. This is your parent’s loan, therefore the checks on being made on their history.

There are usually three repayment options for a PLUS loan. These are (1) A level payment plan with monthly interest and principal. (2) An interest only plan where you pay only the interest while student is in school. (3) A monthly payment plan based on percentage of income. You can choose the plan of your choice.

The school will require your parents to fill out the FAFSA Financial Aid Application form. The interest rate on the PLUS Loan is fixed at 8.5% as of July 1 of this year with a cap of 9%.

Plus loans have been assigned a 10-year term for repayment. These loans can be paid off sooner and there is no prepayment penalty. And your repayment begins within 60 days of the loan being fully disbursed.

Like most other school loans, the amount will be disbursed in at least two installments. It will most likely go directly to your school or in some cases go first to your parents for endorsement and then to your school. If there is an amount remaining, it will go to your parents unless they authorize the amount to be released to you.

And there is one other very important note to know about regarding this certain type of loan. If you have a good relationship with your parents, not to worry. However, your parents can cancel the loan because it is their loan with their signature.

Your school must notify your parents in writing whenever it credits the student’s account with the funds. This notification must be sent to your parents no earlier than 30 days before, and no later that 30 days after your school credits your account.

Then your parents may cancel all or a potion of their loan if they inform your school within 14 days after the date your school sends this notice. Your school can then tell you the first day of your payment period.

Or, if your parents receive the PLUS Loan funds directly by check, they may refuse the funds by not endorsing the check. Also, remember, it is their loan and they are responsible to repay it in full.