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.
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11 Comments »

  1. winibota said,

    I have student loans myself from my college education. Will my son qualify for financial aid?

  2. Maile said,

    My husband took out a Parent PLUS loan for the 1st of 3- 6mo sessions for my son’s college tuition (he is in an accelerated program). My husband has been unemployed for the past year and the first loan payment is due in a couple of weeks (which we are trying to obtain a deferment for) and the we also need to apply for the next session loan in a month. What would you recommend: Get another Parent PLUS loan to cover the next 2 sessions? Have my son become emancipated from us? Have my son try and get the loans in his own name? The strain of having my husband unemployed and the stability of my job, the thought of the upcoming loan payment, getting more college loans, all coupled with the fact we have 2 other children under 18 is taking its toll and really stressing me out. Can you give some advise on what avenue we should go? Thanks.

  3. Jared said,

    Hello,
    My mom took out a Parent Plus Loan for me. I graduated in Dec. 2008 and my payments were deferred until September. As you know with a Parent Plus loan the interest just keeps accuring. I had to pay about $1,500 in interest before the rest was capitalized and there was a payment due. Now my question is can I get a tax break on that interest paid even though the loan is in my mothers name? I am single, not claimed on anyone else’s taxes, and have proof that the money which is being paid comes from my own bank account. I have other student loans that I know I can deduct but the Parent Plus loan I paid a ton of interest on. So my question is can I get a tax deduction on the interest paid on the Parent Plus loan in my mothers name? And if I can’t, can she? Thank you for your help in advance

    • Hi Jared,
      The loan is in your mother’s name so you cannot claim any tax benefits.

      Depending on the rest of her financial situation, your mother may qualify for tax benefits for paying interest on the loan. She should talk to a qualified tax professional to analyze her particular situation.

      • bob said,

        is there any specific clause that can be referenced to this rule.. have a dead beat son that insist that he is going to file the tax deduction on his income tax. Only thing to convince him that he is not eligible is with something that is infact a legitament document

  4. sharon said,

    We are applying for a Parent Plus Loan for our son. Someone had told us that when it comes time for repayment, if payments have been made on time, after so many years our son could have the loan put in his name. Is there any accuracy to this?

    • Sharon,
      No, the loan cannot be transferred to your son’s name. Parent PLUS loans are in the parent’s name only. Some private loans which are in the student’s name and have a parent as the co-signer have a co-signer release option after a certain number of years of on-time payments.

      But I’d go with the PLUS loan if I were you – not many lenders have co-signer release, and for those that do, 1 late payment and the option disappears.

  5. Melanie said,

    My parents have horrendous credit and I guarantee they will be denied after applying for the loan. With that said, this really puts me in a rut when it comes to making the most of my college education, such as doing a study abroad. I talked with my financial aid advisor and she pretty much told me I couldn’t be marked independent according to FAFSA because I was not 24 nor was I in an abusive household. My question is, since I know I will get denied, will I become “independent” on the FAFSA, enabling me to get the maximum amount of money so I can take advantage of studying abroad??

    • Hi Melanie,

      No, simply having parents with bad credit is not enough to have you marked as an independent student. There is a little good news though. If your parents are denied for a Parent PLUS Loan, you can submit the denial to your financial aid office and you will qualify for for Stafford money, which should help.

  6. Candy said,

    If I, the parent, take out a PArentPlus loan for my childs education, is the interest on that loan tax deductible?
    Also, is there a specific pay-off timeframe, ie 2 years, 5 years, or length of education?


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