PLUS Loans

Paying the college bill is becoming more and more difficult during each passing year as tuition costs continue to rise. There are a number of options available to families for covering the college tuition bill. One such option is the Federal PLUS Loan Program.

The Federal PLUS Loan is borrowed by a parent on behalf of a dependent child to pay educational expenses at an eligible college and may be a viable financing option for some families. Parents must pass a credit analysis and be approved for the loan. Parents must not have any negative credit history, as determined by the U.S. Department of Education: thus, PLUS Loans are not guaranteed until after a parent has applied for the loan and has been approved. The loan is in the parent’s name and social security number. The parent is fully responsible for repaying the loan.

There are no set annual borrowing limits. Parents can borrow up to the total Cost of Attendance (COA) minus the total financial aid received. The loan offers a fixed interest rate of 7.9%, and there is a fee of 4% of the loan amount, deducted proportionately each time a loan disbursement is made. To give an example, for a $10,000 PLUS Loan, there would be a fee of $400 total (4% of the loan amount) which would yield a net loan amount of $9,600. At a two-semester college, $4,800 would be disbursed each semester. The $400 fee is withheld by the U.S. Department of Education.

Repayment of the Federal PLUS Loan begins 60 days after the final disbursement of the loan. For example, at a traditional two-semester college, in many cases the final disbursement of a PLUS Loan will be made at the start of the second semester. PLUS borrowers would need to begin repaying the PLUS Loan 60 days after this final distribution date.

Let’s review a repayment example for the Federal Direct Plus Loan:

Interest Rate = 7.9% and the Loan Amount = $10,000.00

The estimated repayment for a Federal Direct PLUS Loan of $10,000 with a 7.9% fixed interest rate under the Standard Repayment Plan would be $120.80 month for 120 months (ten years) with a total interest charge of $4,496.00. This is a repayment estimate, calculated using the loan calculator on the Federal Student Aid website.

Click here for additional PLUS Loan Repayment Examples.

Loan repayment calculators provide estimates; however, they provide a valuable guide for budgeting and planning. Values may not reflect the actual amount computed by the direct loan servicing center but do provide a good estimate of loan repayment amounts for planning.

Use an online calculator specific to the Federal Direct PLUS Loan Program and the Federal Direct Stafford Loan Program(s) in order to best plan for your loan payments so you are prepared!

LOAN CALCULATORS are an important tool – be sure to use them as a guide when budgeting for college!

Be an informed borrower! Read the Master Promissory Note (MPN) and loan disclosures very carefully. When you sign a loan promissory note, it is a legal document that binds you to repay the loan including all accrued and capitalized interest in addition to any fees, if applicable. Limit borrowing to only what you absolutely need. Failure to repay a federal loan, or late payment of a loan, will negatively affect your credit.

A PLUS Loan can help pay college expenses. The maximum that a parent can borrow cannot exceed the difference between the total Cost of Attendance (COA) and the total amount of financial aid received, as determined by the college. In addition, parents must demonstrate eligibility by passing a credit check facilitated by the U.S. Department of Education. There is no cumulative limit on PLUS Loan Borrowing.Please be sure to compare the PLUS Loan option with other available options, such as tuition payment plans and private education loans. Depending on the strength of your credit, you may have other options available to you. Be sure to compare the PLUS Loan option to private education loans, carefully comparing the costs associated with each of these loans. See the other articles on this site pertaining to credit as well as private education comparison points. If you need to borrow, please be an informed borrower. Always remember to take full advantage of the Federal Direct Subsidized Loan Program and Tuition Payment Plans whenever possible.

For more information on the PLUS Loan Program as well as other college financing information, please see Financial Aid Sense: A Practical Guide ~ Continuing to help families with the college financing process.

"Financial Aid Book"

Jan Marie Combs, EzineArticles Basic Author