In this entry I will discuss another loan option for affording college, and will follow this post up with the advantages and disadvantages of this loan.
The Parent PLUS Loan is a federally sponsored student loan available to the parents of undergraduate, dependent students. If you are a parent planning to help pay for your child’s education, the PLUS Loan can fund the entire cost not covered by other financial aid you receive. Payments can be deferred until graduation.
Here are more details on the PLUS Loan:
-This loan is available through two financial aid programs: the Federal Family Education Loan Program (FFELP), and the William D. Ford Federal Direct Loan Program (Direct PLUS Loan). With the Direct Loan, you receive your loan from the U.S. Department of Education. Through the FFELP PLUS Loan, you receive your loan from a private lender (who will send the loan funds to your school).
-The interest rate for the Direct PLUS Loan is 7.9%. The interest rate through FFELP (Federal Parent PLUS Loan) is 8.5%. (yes, this is a fixed interest rate)
-Applying for this loan involves a credit check, so you should have at least modest credit in order to be eligible for this financial aid. Having “adverse” credit can delay your approval (although many private loan companies can still help you to get past this problem; “adverse” credit means being 90 days late on any debt, or having any Title IV debt during the last 5 years that was subjected to bankruptcy discharge, repossession, foreclosure, default determination, wage garnishment, tax lien, or write-off.
-The PLUS Loan is NOT based on financial need. Anyone with good credit is eligible to receive this loan, regardless of how much money they already have to pay for college.
-As this loan is not based on financial need, you will be responsible for paying the interest from the moment you receive the loan until you pay it off fully. The interest can be paid as it accrues, or you can begin paying it off when you start your repayments (i.e. after graduation).
-Two payment options available: Can either begin payments within 60 days of loan being dispersed, or 6 months after student graduates, leaves school, or enrolls less than half-time.
-No grace period after graduation. Must begin repayments right away.
-$50 minimum monthly payment
-As with the Perkins and Stafford Loans, this loan can be consolidated.
-Loan has a general repayment period of 10 years. If you consolidate, however, this could be extended by up to 20 more years (this will also substantially lower your monthly payment, although you will end up paying much more interest on the loan by the end).
-Applying for and receiving this loan requires no collateral, and the interest may be tax deductible.
-Federally guaranteed; this means fixed interest rates, guaranteed availability, etc.
-No prepayment penalties; you will not be charged a fee for making more than your minimum monthly payment, or for paying off the loan before it is due.
-This loan is available throughout the school year, even after you have paid your educational expenses.
-There is also a program available to Graduate Students, called the Grad. PLUS Loan. Most of the details here also apply to graduate students interested in this loan
-School may or may not require you to fill out the FAFSA to be eligible for this loan. But as I have emphasized, you must fill it out regardless to be eligible for many financial aid programs that will help you in paying for college!
Differences from Stafford and Perkins Loan Programs:
-When a parent takes this loan, it becomes their commitment and not the student’s (in the case of the Stafford/Perkins Loans, it is the student that borrows, so it is their commitment from the beginning)
-The PLUS Loan has higher interest rates; however, these rates are fixed and will not fluctuate
-The PLUS Loan can cover up to entire cost of education
-The PLUS Loan has different repayment plans; however, neither plan offers you an advantage as far as saving on interest or anything. In the end, you will end up paying the same for both, how and when you make the payments are just different.
In the next post, I’ll analyze this loan, and discuss how it will and won’t help you to afford college.
Jan 1, 2009
