July 17, 2009

So what is a PLUS Loan, anyway?

Posted in Parent PLUS Loans, The Financial Aid Process at 7:07 AM by Joe From Boston

Let’s review the basics as many of you will soon be signing PLUS Loan paperwork.

A Parent PLUS Loan is a federal student loan with a fixed interest rate of 8.5%.  Parent PLUS Loans can be taken out by any parent or legal guardian to help pay for an undergraduate student’s college tuition, room and board.

You can borrow up to the total cost of education (tuition, on-campus housing and board, fees) minus any other financial aid received.  What does this mean in real terms?  If you get $2000 in scholarships and a $3000 Stafford Loan and the total cost of education is $40,000, then you can borrow up to $35,000.

PLUS Loans do require a credit check, but the credit requirements are FAR less stringent than just about any other loan you can think of.

And what happens if you get denied?  Present the denial letter to your child’s school and they will qualify for more Stafford Loan money.



  1. Marty McShea said,

    Our first of seven children will be starting college next year. We have qualified for the Plus Loan to assist him in college. Our plan is to just pay the interest now and then when he graduates he will give us the money each month to pay off his (my) loan. Our concern is that with seven children faifly close in age, and if Plus Loans will be required for all of them how will this affect my wife and I’s debt/income ratio? and if in the future we need to get a car loan will all these Plus Loans affect that?

  2. Gerald LeBlanc said,

    My son will be starting his junior year this 2009 Fall semester. His Stafford and Perkins loans don’t start repayment until after he graduates. We’re looking for an additional loan for his tuition and would prefer one that doesn’t need to be repaid until after he graduates. It is my understandiung that the repayment period for each PLUS loan begins on the date of the final disbursement for that loan. If I just apply for the amount he needs for this semester (approx $4,000) does that mean that when this amount for this Fall gets disbursed, my first payment will be due within 60 days? If I then apply for another PLUS loan for the Spring 2009 semester will that be considered a different loan and will I need to start paying 60 days after that final disbursement, and so on and so on for each semester until he graduates? Would it make more sense to estimate what it will be for the remaining four semesters (4X $4,000 = $16,000) so the final installment won’t occur until the Spring of his senior year? I guess I’m looking for the definition of “final disbursement” for a junior in college.

    • Hi Gerrard,
      Generally speaking, you can only borrow one year’s worth at once, so you couldn’t borrow for Junior and Senior year at once. The school will only let you borrow up to the total cost of education for the current academic year.

      Regarding disbursements and payment, it depends on your school and lender company, but I can tell you that many will have 2 disbursements 1 for the fall and 1 for the spring. So if your loan starts payment after the final disbursement, you would begin paying in January/February depending on the actual date.

      If you don’t like the idea of 2 loan payments, then consider consolidating the loans after the second loan is taken out. You can learn more about that here: https://loanconsolidation.ed.gov/AppEntry/apply-online/appindex.jsp

  3. Charlie Taylor said,

    Can your child’s college “require” the parent to take out a Parent Plus loan “prior” to offering other federal “student” loan options?

    • I would doubt it – the Parent PLUS Loan is used to fill the gap between other federal aid and scholarships, and the cost of education.

      Perhaps your child’s college “requires” you to get a PLUS loan before getting a private loan in the student’s name? That would make more sense, and is much better than going straight for the private loan, as the private loans do not have the safe guards that federal loans have.

  4. Micky said,

    I am a student trying to apply for student loans. If I am eligible for the Parent PLUS loan, can I take over the loan rather than have my parents pay it?

    • You could pay your parents the money, but the loan will remain in their name. There is no way to transfer a Parent PLUS Loan to a student’s name.

  5. Gail Shelby said,

    Can we as parents, just take a PLUS loan to finance our daughter’s college cost (one semester only) without her taking the Stafford loan on herself? We want to take the loan, but we do not want her to have a loan on herself to repay after school.

    Someone told me PLUS loan is to “compliment” Stafford….but if we don’t want the Stafford, do we have to take it?

    • Plmhill said,

      Stafford Loan interest rate is lower than the Parent Plus Loan…Stafford is in the student’s name…parent can always pay it for the student. Get as much Stafford as you qualify for now…you may need the Parent Plus loan next year or after. The Stafford Loan does not effect parent’s credit report. Private Bank Alternative Loans do…I do not know if the Parent Plus Loan effects debt to income ratio on the parents credit or not. If you are denied a Parent Plus loan take the denial letter to the college financial aid office immediately…your student will receive additional Stafford Loan funds…which is a good thing! Good Luck

    • Yes, your daughter can reject the Stafford Loan if she wants to, though most Financial Aid offices recommend against this.

  6. sue said,

    I understood that parent plus loan interest rate is 8.5 percent, yet when I go to the parent plus site, it directs me to ‘simple tuition’, where it shows interest as 9.38 percent. Why??
    Thank you.

    • Sue, I’m not sure which website you’re referring to as “the parent plus site” – there are hundreds of sites on the web that discuss the Parent PLUS Loan. Simple Tuition is one of them. Loans made on or after July 1, 2006 have a fixed rate of 8.50% – I’m not sure where you saw that 9.38 %.

  7. Pam blake said,

    Can i take a parent plus loan out for room and board, only tution is paid…

    • Hi Pam,

      Yes, you can borrow up to the total cost of education – including room, board and fees – minus any other aid already received, such as scholarships or Stafford loans..

  8. Peg Burrell said,

    I have 2 daughters in four year fine arts school, oldest entering her senior year and the youngest entering her sophomore. I am having difficulty getting college loans for my children to return to school this fall due to the tightened credit market and credit crisis. I improved my credit report by paying my credit card debt, thereby raising my credit score to the 800+ range. But I had a small ($362) charge off on my credit report which flagged my Federal Parent Plus Loan application…causing a denial. (This charge off had been on my credit report for 6 yrs and never caused a problem until the recent credit market crisis) The charge off was for a “disposal fee” (which I did not feel I owed and had not paid) on a lease vehicle 6 yrs ago with Ford Credit…I recently paid this to improve my credit report. Ford Credit will report this to Transunion Credit Reporting Company as a paid zero balance charge off…with that wording I may still be flagged and denied a Federal Parent Plus Loan. The past 3 years I have co-signed Wells Fargo Collegiate Loans (my x-husband & I each take a daughter and a year to co-sign), this year due to my prior co-signing of these loans by “debt to income ratio” is out of whack and I am not qualified to co-sign and was told I need a 2nd co-signer which I do not have available. (These Collegiate Loans are looked at on my credit report as my personal installment debt instead of as deferred debt in my daughters names.) Except for these co-signed loans I owe less now than I have in over 10 yrs and have done everything I can to improve my credit report. I will appeal the Federal Plus Loan denial and send them my zero balance letter from Ford Credit which I am afraid they may still refuse due to wording) I am finding more and more hoops to jump thru and I am worried I still will not be successful in obtaining a loan this year. Please explain to me what I can do, I know I am not alone in this problem from speaking to other parents facing similar situations. Now my children may not graduate (and transferring is not an option…since they would lose scholarships and grants plus lose so many credits they would be starting over) and if they can not continue college and earn their degrees…how will they pay back the loans they have already taken?
    I have notified my daughters college of the denied Parent Plus Loan but have not heard back from them…such a busy time for their finanical aid office I’m sure.,,but time is growing near to the beginning of the next semester. We need a loan to pay the balance of tuition and living expenses which are not covered by their present financial aid package. Thank you for allowing me to express my situation and I appreciate any information you can share on the subject of college funding for the pending school year.
    Peg Hill Burrell
    [edited to remove personal information]

    • Peg,
      Yes, you’re right, it’s happening to a lot of people. In your shoes, I would do exactly what you have done – apply again for the parent PLUS loan.

      I think the problem with the Wells collegiate loans is that these sound like private loans. Meaning they are in your name, not in your daughter’s. They can never be put in your daughter’s name – they are your loans.

      Going forward I highly recommend you try for Parent PLUS Loans instead of private loans – the borrower benefits and interest rates are MUCH better with the PLUS loans.

  9. Pierce Regnier said,

    I am currently out of work, getting Illinois Unemployment, and my wife is working a full-time job. Our daughter will be a freshmen in August, 2009 and has already been awarded Stafford Loans.

    Last week my wife and I were approved for bankruptcy by the court.

    When my wife filled out the preliminary information for the PLUS Loan she received a rejection note and was told to contact the college.

    With an employed parent and the ability to begin paying all of the interest immediately can we still get a PLUS loan even with a bankruptcy that covers only credit card debt?

    • Pierce, there’s no way I can tell you for certain as there are so many variables involved. You could always try to re-apply. I would guess that you probably will not be approved, though it’s just a guess, as the bankruptcy will affect your credit score.

      The good thing is that as you were denied, if you present the denial letter to your daughter’s college, she will qualify for more Stafford aid.

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