Government’s PLUS Program Offers More Than Parent Loans

When applying for college aid, dependent students — those students who are claimed on someone else’s tax return — may be eligible, depending on their and their parents’ income, for federal grants and student loans, state-funded grants and school loans, and a school’s institutional student aid.

Graduate students and non-dependent undergraduates may also apply for federal, state, and institutional financial aid.

In many cases, a financial aid package may not be enough to cover what your school expects you and your family to pay for college, even when combined with any scholarships and savings you’re bringing to the table.

If you’re an undergraduate and a dependent of your parents, and if your parents are willing to help you pay for college, they may be able to take out a federal parent loan — known as a PLUS loan — that can be used to pay for the cost of attending college.

PLUS parent loans are available in loan amounts that cover up to 100 percent of your certified cost of attendance.

PLUS loans, however, are no longer just for parents and their dependent undergraduates.

Beginning in 2006, the federal government opened up the PLUS program to graduate students as well. PLUS graduate student loans, known as Grad PLUS loans, can be used, like PLUS parent loans, to pay up to 100 percent of your certified cost of attendance.

Under federal rules, graduate students are automatically regarded as non-dependents and are thus ineligible for PLUS parent loans, which are only available to parents of undergraduates.

Grad PLUS loans offer graduate students an additional college financing option to scholarships, grants, fellowships, and federal Stafford graduate student loans.

Eligibility for PLUS parent loans and graduate loans is determined, in part, by the information you submit on the FAFSA, the Free Application for Federal Student Aid. All students, both graduate and undergraduate, who are looking for federal financial aid for school must complete a FAFSA each year.

PLUS and Grad PLUS loans, unlike federal Perkins college loans and federal Stafford student loans, are credit-based loans that require a modest credit check.

In order to meet PLUS credit requirements, parent and graduate student applicants must be free of serious adverse credit items, such as a recent foreclosure or bankruptcy, significant delinquencies (defined as 90 days or more) on credit accounts, or a default on another federal parent or student loan.

Undergraduate students whose parents fail to qualify for a PLUS loan are eligible to receive additional money in federal student loans to help meet their expected family contribution to their college costs.

Loans made through the federal PLUS program allow you to borrow money for college at a fixed interest rate.

PLUS loans, both for parents and graduate students, currently carry a fixed interest rate of 7.9 percent. For graduate students looking at their graduate loan options, this rate is slightly higher than the fixed 6.8-percent rate available on federal Stafford graduate student loans.

PLUS and Grad PLUS loans are also subject to a 4-percent servicing fee, which is deducted from the loan proceeds at the time the loan is issued.

Until 2008, repayment on PLUS parent loans would begin 60 days after the loan funds were disbursed. However, under new legislation passed in 2008, parents may now defer repayment of their PLUS parent loans until their student graduates or leaves school, and for an additional grace period of six months following graduation.

The rules for PLUS graduate student loans are slightly different. As a graduate student, you may defer repayment on your Grad PLUS loans while you’re still in school at least half-time, but there’s no six-month grace period once you leave school. This timetable should be an important consideration and puts additional pressure on you to have a repayment plan in place before graduation.

Unlike some federal student loans, PLUS and Grad PLUS loans are not subsidized, so interest accrues on the loan balance from the time the loan is made, even if you’re currently deferring your loan payments.

The standard repayment term for PLUS and Grad PLUS loans is 10 years. You may, however, be able to extend your repayment term in order to lower your monthly loan payments. You can call the Department of Education to discuss repayment and extension options.

Loans issued under the PLUS program can be consolidated into a single federal consolidation loan, although parent loans must be consolidated separately from student loans. Parent loans can’t be commingled with student loans into a single account for the purposes of repayment.

 student loans, scholarships for students, Free Application for Federal Student Aid (FAFSA)