A PLUS Loans, also known as a direct PLUS Loan, is a federal loan for higher education available to parents of undergraduate students, in addition to graduate or professional students. A PLUS loan is a student loan offered by the U.S. Department of Education’s William D. Ford Federal Direct Loan Program to parents of undergraduate students. This type of loan is a direct loan from the government.
PLUS Loans: How They Work
To qualify for a PLUS loan, students must be enrolled at least half-time at a school participating in the Federal Direct Loan Program.
PLUS loan money first goes to the educational institution, which uses it for expenses such as tuition, room and board, fees, etc. Any remaining funds are disbursed directly to the parents or students.
For loans disbursed on or after July 1, 2021, and before July 1, 2022, the interest rate is 6.28%.
PLUS Loan Qualifications
A student and parent must complete the Free Application for Federal Student Aid (FAFSA) in order to apply for a PLUS loan. In addition to passing a standard credit check, students pursuing a graduate or professional degree can also apply for PLUS loans on their own behalf. Graduate PLUS loans are typically referred to as graduate PLUS loans, rather than parent PLUS loans.
For a parent PLUS loans, the student must be financially dependent on a biological, adoptive, or stepparent/grandparent. Both parents and students must meet the eligibility requirements for student aid to receive one, such as U.S. citizenship or status of permanent resident alien. If the parent has an adverse credit history, they may still qualify if they have an endorser for the loan or can demonstrate extenuating circumstances for their poor credit score. When parents are ineligible for this kind of loan, their children may be able to take out student loans with higher limits instead.
Students only qualify for Grad PLUS loans, which have the same eligibility requirements.
PLUS Loans: Pros and Cons
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The pros
PLUS loans offer a number of major benefits to parents. They allow parents to borrow the entire amount their child needs for college, minus any other financial aid the student receives. In addition, the borrower does not need to demonstrate financial need to qualify for the loan. This includes tuition, room and board, fees, books, and other related expenses.
A PLUS loan has a fixed interest rate that stays the same throughout the entire loan period until it is fully paid off. Therefore, there is no threat of higher interest charges, even if market rates go up. Plus loan rates are relatively low, but not as low as student loan rates.
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The cons
PLUS loans are subject to a credit check, which is one of the potential downsides. In spite of not needing excellent credit to qualify, your credit file should be relatively clean if you wish to qualify. If you have someone to guarantee your loan, you may still be able to qualify even with poor credit.
The government charges a fee on PLUS loans, which is deducted from disbursements and reduces the amount of money you receive. For loans advanced after October 1, 2020, and before October 1, 2022, the fee is 4.228%. A loan of $25,000 would cost $1,057 in fees. If you choose to repay the loan, you must pay all of the fees included in the loan.
Furthermore, parents are permanently responsible for repaying the PLUS loan. Parental loans cannot be transferred to their children, even if they have the means to repay them. Moreover, unlike Sallie Mae loans, parents will not be able to get their loan balance forgiven if their child suffers from total permanent disability.
PLUS Loan Repayment
Payment on a PLUS loan usually needs to be made once the whole loan is disbursed. You may opt to start repaying while the student is still in school or ask for a deferment. A deferment allows you to abstain from payments during the period of time while the student is enrolled at least half-time or in the additional six months after they graduate, leave school, or drop below half-time enrollment. Bear in mind that interest will continue to accumulate during this period and will be added to the loan’s balance.
Several repayment plans are available for parent PLUS loans from the Department of Education, including:
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Repayment plan standard.
With this plan, you make fixed monthly payments for up to 10 years. If you consolidate more than one parent Plus loan, the repayment period can be extended to 30 years.
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Repayment plan with graduated interest.
In this plan, you’ll also pay off your loan over a period of up to ten years. However, rather than being fixed, your payments will start low and increase every two years.
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Repayment plan with extended terms.
If you owe more than $30,000 in direct loans, you can pay off your debt over 25 years by making either fixed or graduated payments.
Borrowers with graduate PLUS loans may have additional options, including income-driven repayment plans, which determine their monthly payments based on their income and family size. Depending on the repayment plan they choose, graduate PLUS borrowers usually have ten to 25 years to repay their loans.
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