Plus loan
PLUS Loan
A PLUS loan is a federal student loan offered by the United States Department of Education that allows parents of dependent undergraduate students, or graduate and professional students themselves, to borrow money to help cover the cost of higher education. The name originally stood for “Parent Loan for Undergraduate Students,” though the program has since expanded to include graduate borrowers as well.
Unlike other federal student loans, PLUS loans are not based on financial need. Instead, eligibility is determined primarily by a credit check. Borrowers must not have an adverse credit history to qualify. PLUS loans are designed to fill the financial gap left after other forms of financial aid, such as grants, scholarships, and standard federal student loans, have been applied.
Types of PLUS Loans
- Parent PLUS Loan: Taken out by the biological, adoptive, or stepparent of a dependent undergraduate student enrolled at least half-time at an eligible school.
- Grad PLUS Loan: Taken out directly by graduate or professional students enrolled at least half-time in a qualifying program.
Key Features
- Loan limits: Borrowers may take out up to the total cost of attendance minus any other financial aid already received.
- Interest rates: PLUS loans carry a fixed interest rate set by the federal government each year. These rates are typically higher than those on other federal student loans such as Direct Subsidized or Unsubsidized loans.
- Origination fees: A percentage of each loan is deducted as an origination fee before the funds are disbursed.
- Repayment: Repayment typically begins within 60 days after the loan is fully disbursed, though parent borrowers may request a deferment while the student is in school.
- No annual or lifetime limits: Unlike other federal loan types, PLUS loans do not have a fixed yearly or total borrowing cap beyond the cost of attendance.
Simple Example
Suppose a student attends a university where the total cost of attendance is $30,000 per year. After receiving $10,000 in scholarships and $5,500 in federal Direct loans, there is still a $14,500 gap. The student’s parent could apply for a Parent PLUS loan to cover some or all of that remaining balance. The parent would be responsible for repaying the loan, not the student.
Important Considerations
- Because PLUS loans carry higher interest rates than other federal options, borrowers should exhaust all other financial aid opportunities before applying.
- Parent borrowers should carefully evaluate their own financial situation, since the repayment obligation falls entirely on them.
- PLUS loans are eligible for some federal repayment plans and forgiveness programs, though the options may be more limited compared to other federal loan types.
- A credit check is required, and applicants with adverse credit history may need a creditworthy endorser to qualify.
Understanding the terms and responsibilities of a PLUS loan before borrowing is essential for making sound financial decisions about funding higher education.