Federal PLUS Loans
Federal PLUS Loans are loans that your parents can take out to pay for your education expenses if you’re a dependent undergraduate student enrolled at least half time. Also, your parents must have no adverse credit history. As is true for Stafford Loans, there are FFEL PLUS Loans and Direct PLUS Loans. PLUS Loans are unsubsidized.
Can my parents get both a Direct PLUS Loan and a FFEL PLUS Loan for me?
They can apply for either a Direct PLUS Loan or a FFEL PLUS Loan, but not for both for you during the same enrollment period. Your parents could, however, apply for a Direct PLUS Loan for you and a FFEL PLUS Loan for one of your siblings, for example.
How do my parents apply?
For a Direct PLUS Loan, your parents must complete a Direct PLUS Loan application and promissory note, contained in a single form that you get from your school’s financial aid office.
For a FFEL PLUS Loan, your parents must complete and submit a PLUS Loan application, available from your 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.
Although it’s not a requirement, parents are encouraged to have their dependent children file a FAFSA, so their children can receive the maximum student aid they’re eligible for.
Are there any borrowing requirements my parents have to meet?
Yes, generally they have to pass a credit check. If they don’t pass, they might still be able to receive a loan if someone, such as a relative or friend who can pass the credit check, agrees to endorse the loan and promises to repay it if your parents don’t. Your parents might also qualify for a loan if they don’t pass the credit check if they can demonstrate that extenuating circumstances exist. For them to borrow for you, you must meet the general eligibility requirements for federal student aid, and your parents must also meet some of these general requirements. For example, they must meet citizenship requirements or be eligible noncitizens and may not be in default or owe a refund to any FSA program.
Do they need to find a lender?
Not if they borrow under the Direct Loan Program, because their lender will be the U.S. Department of Education. Your school assists the federal government in administering the Direct Loan Program by distributing the loan application, processing the loan, and disbursing the loan funds.
Under the FFEL Program, your parents will need to find a participating lender. For help, they should contact your school or the guaranty agency that serves your state. For your state agency’s address and telephone number, and for more information about borrowing, your parents can contact the Federal Student Aid Information Center at the address or toll-free number listed on the web page. A directory of guaranty agencies is also available at this U.S. Department of Education Web site: www.ed.gov/Programs/bastmp/SGA.htm.
NOTE: Your school can refuse to certify your parents’ loan application, or can certify a loan for an amount less than they would otherwise be eligible for, if the school documents the reason for its action and explains the reason to your parents in writing. The school’s decision is final and cannot be appealed to the U.S. Department of Education.
How much can my parents borrow?
The yearly limit on a PLUS Loan is equal to your cost of attendance minus any other financial aid you receive. For example, if your cost of attendance is $6,000 and you receive $4,000 in other financial aid, your parents could borrow up to—but no more than—$2,000.
Do they get the money or do I?
Either the U.S. Department of Education (for a Direct PLUS Loan) or your parents’ lender (for a FFEL PLUS Loan) will send the loan funds to your school. Your school might require your parents 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 your tuition, fees, room and board, and other school charges. If any loan funds remain, your parents will receive the amount as a check or in cash, unless they authorize the amount to be released to you or to be put into your school account. Any remaining loan funds must be used for your education expenses.
Can my parents cancel the loan if they change their minds, even if they’ve signed the promissory note agreeing to the loan’s terms?
Yes. Your school must notify your parents in writing whenever it credits your account with PLUS Loan funds. This notification must be sent to your parents no earlier than 30 days before, and no later than 30 days after, the school credits your account. Your parents may cancel all or a portion of their loan if they inform your school within 14 days after the date your school sends this notice, or by the first day of the payment period, whichever is later. (Your school can tell you the first day of your payment period.) If your parents receive PLUS Loan funds directly by check, they may refuse the funds by not endorsing the check.
What’s the interest rate on PLUS Loans?
The interest rate could change each year of repayment but does not exceed 9 percent. For July 1, 2003 to June 30, 2004, the interest rate for PLUS Loans in repayment was 4.22 percent. Interest rates are adjusted each year on July 1. Your parents will be 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.
Other than interest, is there a charge to get a PLUS Loan?
Your parents will pay a fee of up to 4 percent of the loan, just as you would for a Stafford Loan.
When do my parents begin repaying a PLUS Loan?
Generally, repayment must begin 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. Your parents must begin repaying both principal and interest while you’re in school.
How do my parents pay back the loan?
Your parents have nearly all the repayment options that Stafford Loan borrowers have. The only exception is the Income Contingent Repayment Plan, which is not an option for Direct PLUS borrowers. Direct PLUS Loans can also be consolidated.
Are there any tax incentives available for paying back these loans?
Yes, just as there are for Stafford Loans.
Is it ever possible to postpone repayment of a PLUS Loan?
Yes, under certain circumstances, your parents can receive a deferment or forbearance on their loan, as long as it isn’t in default. Generally, the same deferment or forbearance provisions that apply to Stafford Loans also apply to PLUS Loans.
Can a PLUS Loan be discharged (canceled)?
Yes, under certain conditions. A discharge releases your parents from all obligation to repay the loan.
Your parents’ PLUS Loan can’t be canceled because you didn’t complete your program of study at your school (unless you couldn’t complete the program for a valid reason—because the school closed, for example). Cancellation also is not possible because you didn’t like the school or the program of study, or you didn’t obtain employment after completing the program of study.
For more information about loan discharge or repayment, if your parents have a Direct PLUS Loan, they should contact the Direct Loan Servicing Center at 1-800-848-0979, or go to www.dl.ed.gov. If they have a FFEL PLUS Loan, they should contact the lender or agency holding the loan.
