April 30, 2009
Parent PLUS Loans 101
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.