April 30, 2009

Parent PLUS Loans 101

Posted in Parent PLUS Loans at 7:12 AM by Joe From Boston

Will your paycheck cover all the college expenses?

Will your paycheck cover all the
college expenses?

It’s that time of year again – parents are trying to figure out how to pay the difference between their child’s financial aid package and what next year will really cost.

So let’s do a review of what a PLUS loan is, and what the benefits are.
A PLUS loan is a loan for parents or guardians. You can borrow up to the full cost of education, minus any aid received (e.g. scholarships, Stafford loans).

  • You need the FAFSA to get a PLUS loan.
  • Only parents or guardians can take out this loan
  • The interest rate is set by Congress.  It is virtually guaranteed to be less than any private loan you could find.  Currently, the rate is fixed at 8.5% (July 2008 – June 2009)
  • There is a 3% origination fee, and there may be a 1% federal default fee that are deducted from the principal.
  • The PLUS loan cannot be transferred into the student’s name
  • PLUS Loans are credit-based, but the credit requirements are less that those of private loans or 2nd mortgages.
  • You have to apply for a new loan each year.
  • There are no penalties for paying the loan off early, and you will not be responsible for any future interest.
  • If you are denied a PLUS loan, you can submit the rejection letter to your child’s school to qualify him/her for more Stafford loan money.