PLUS Loans

PLUS Loans are loans that your parents can get to pay for your undergraduate degree expenses provided that you are enrolled at least half time. A key requirement of this is that your parents must have no adverse credit history. Your parents can apply by filling our a PLUS Loan application. While it is not required, having the student fill out a FAFSA form enables their parents receive the maximum amount of financial aid for which the student is eligible.

One of the most attractive parts of PLUS loans is that there is no need to determine your "Expected Family Contribution" (EFC) as must be done with other form of federal financial aid. This makes the process simpler. However, you are still limited to the amount of money required to pay your tuition, fees, room and board.

After filling out the loan application, one of the first steps is a credit check. If they do not pass the credit check, your parents will need to get someone with better credit history to co-sign the loan, or demonstrate that there were extenuating circumstances leading to the past credit problems.

Under Direct Loan programs, it will not be necessary to find a lender, as the federal government will be the lender. Under a FFEL Program, your parents will need to find a participating lender. Contacting your school or your state's education agencies is a good place to start

The amount your parents can borrow is equivalent to the amount you need to pay in educational expenses (tuition, fees, room and borad) minus the amount you receive in other financial aid. So if your educational expenses are $5000, and you receive $3000 in other finiancial aid, your parents could then borrow an additional $2000 as part of a PLUS loan.

Your school first received the funds, and then may require your parents to immediately endorse a check back to the school. The amounts received will first be applied to tuition, fees, and room and board, and any leftover amounts will be sent to your parents, unless they authorize the release of the funds back to you.

Your school is required to notify you in writing of each deposit to your account (or to send you a check). You may cancel the loan at any time by providing a notice in writing to your school. Once you provide such notice, you will receive no more funds, and if you provide such notice within 14 days of the last deposit to your account (or the date of the last check), you may return that last deposit (or check). All other funds you may have received prior to that, however, still constitute a loan and still need to be repaid.

The interest rate is variable, but will not exceed 9 percent. For the perdio from July 1, 2003 to June 30, 2004, the interest rate was set at 4.22 percent. Interest rates are adjusted every year on July 1. Your parents will have to pay a fee of up to 4% of the total amount of the loan.

PLUS Loans do not come with a grace period. Repayment must begin within 60 days of the initial receipt of funds. Under certain circumstances your parents can obtain additional deferrments, but these types of deferrment must be applied for, and are not automatic. The federal government subsidizes the interest during any deferrment.

Source: The Student Guide, published by the US Department of Education. Note that federal financial aid programs are subject to change. Check with the school(s) of your choice to get the very latest information.