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Federal PLUS Program Smart Move for College Funding

Under the Parents PLUS loan program, parents are able to help pay their child’s education expenses. The student must be a dependent undergraduate who is enrolled at least half time in an eligible program at an eligible school. PLUS Loans are available through the Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Loan) Program. Parents can get either of these loans, but cannot get both, during the same enrollment period. An acceptable credit history is a must. It is simple to apply for the Direct PLUS Loan.

The student’s parent must complete a Direct PLUS Loan application and promissory note, contained in a single form that is available at any college’s financial aid office. For the FFEL PLUS Loan, the parent has to fill out and send in the PLUS Loan application, available from the school, lender, or your state guaranty agency. After the school completes its portion of the application, it must be sent to a lender for evaluation.

A credit check will is always required, and must be passed. If the credit check is not acceptable, the parent may still be able to receive a loan if they can provide proof of a hardship, or if someone, such as a relative or friend who is able to pass the credit check, agrees to endorse the loan. An endorser promises to repay the loan if the parent fails to do so. The parent might also qualify for a loan without passing the credit check if they can demonstrate that extenuating circumstances exist. The student and parent must also meet other general eligibility requirements for federal student financial aid. The yearly limit on a PLUS Loan is equal to the cost of attendance minus any other financial aid the student receives.

After approval, either the U.S. Department of Education (for a Direct PLUS Loan) or the parents’ lender (for a FFEL PLUS Loan) will send the loan funds to the college. The school might require the parent to endorse a disbursement check and send it back to the school. In most cases, the loan will be disbursed in at least two installments, and no installment will be greater than half the loan amount. The funds will first be applied to the tuition, fees, room and board, and other school charges. If any loan funds remain, the parent will receive the amount as a check or in cash, unless they authorize the amount to be released to the student or to be put into the school account. Any remaining loan funds must be used for education expenses.

Federal PLUS Loans are unsubsidized loans made to parents. If the student is independent or the parents cannot get a PLUS loan, the student is eligible to borrow additional Stafford Loan funds. The interest rate for the PLUS loan is variable, but never exceeds 9 percent. Interest rates are adjusted each year on July 1 and the parent is notified of interest rate changes throughout the life of their loan. Interest is charged on the loan from the date the first disbursement is made until the loan is paid in full. There is also a small fee charged in order to obtain the PLUS loan, which is up to 4 percent of the loan.

Repayment of the PLUS loan generally begins within 60 days after the loan is fully disbursed. There is no grace period for these loans. This means interest begins to accumulate at the time the first disbursement is made. The parent must begin repaying both principal and interest while the student is in school. There are some tax incentives available for paying back these loans.