Direct PLUS Loans are federal student loans that are offered as part of the Direct Loan Program, and are a bit different than other types of federal education loans in that they are based in-part on credit. There are two kinds of PLUS Loans, and which one you qualify for is dependent on whether you are still an undergraduate student, or are a graduate student.
- Direct PLUS Loans for Parents
- Direct PLUS Loans for Graduate and Professional Students
If you are an undergraduate student a PLUS Loan can only be taken out by your parents. If you are enrolled in a graduate, or professional degree program then you are allowed to take out a PLUS Loan on your behalf. This is why PLUS Loans are commonly referred to as “parent” loans, as they are often utilized by parents who want to help finance their child’s higher education.
Loan Costs and Amounts
Direct PLUS Loans come with a fixed interest rate that is currently set at 7.9 percent. They also come with a 4.0 percent fee that is charged each time a loan disbursement is made. You can borrow up to the cost of your attendance minus any financial aid that you have in place via a PLUS Loan.
Because PLUS Loans have a fixed interest rate, it may be a smart move to consider applying for these loans before looking into any sort of private financing. Having a fixed interest rate can greatly reduce the cost of your loan when compared to having an adjustable rate, which most private education loans do.
This is why I recommend that students at least take into consideration the possibility of getting a PLUS Loan before they go ahead and apply for private student loan funding.
Eligibility and How to Apply
PLUS loans are federal education loans, and either you, or your parent must abide by the appropriate federal student aid eligibility requirements before you will be able to qualify for a PLUS Loan.
- This means that you must still complete a FAFSA during each year that you plan on applying for a PLUS Loan.
PLUS Loans are based in-part on credit, and either you, or your parents must not display what the Department of Education considers to be an “adverse credit history” in order to get approved for a PLUS Loan.
A credit check will therefore be done when you apply, and you will have to complete a separate application in conjunction with the FAFSA to apply for the PLUS Loan. You can get a copy of this application from your school’s financial aid department.
Repayment
Repayment begins six months after you fall below a half-time enrollment status, which should mean after you graduate. If you are a parent who plans on taking out a PLUS Loan for your child, you will have to payback the loan and not your son or daughter.
Repayment benefits such as forbearance and deferment may be available, and to find out more you should contact the servicer of your loan.
Overall I recommend that students and parents look into their options when it comes to PLUS Loans before they go ahead and begin to consider private student loan financing. I say this because PLUS Loans will often cost less when all is said and done due to the fixed, and relatively low interest rates and small fees.
The fact that you can borrow up to the cost of your attendance is another positive factor, and in the end PLUS Loans should never be overlooked as a means to finance your higher education.
