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The Federal PLUS Loan Program is a source of long-term loans for the parents of dependent undergraduate students. There is no established annual maximum a parent may borrow on behalf of each dependent child, however, the loan amount cannot be greater than the difference between the student's cost of attendance and his or her other estimated financial aid. Also, there are no aggregate limits in the PLUS Loan program as there are with the Federal Stafford Loan program.
Federal PLUS Loan checks are made co-payable to the parent and the school, and must be disbursed directly to the school.
Beginning July 1, 1998, the interest rate on Federal PLUS is variable and may not exceed 9%. The interest rate is set annually on June 1st. For the period beginning July 1, 1997, through June 30, 1998, the interest rate is 8.98%.
Lenders are authorized to charge Federal PLUS Loan borrowers a loan origination fee of up to 3% to offset the federal government's cost of the program. In addition to the 3% origination fee, borrowers also pay an insurance premium which by law cannot exceed 1% of the principal amount of the loan. These fees are deducted proportionally from each disbursement of the PLUS Loan.
The federal government does not currently require parents to complete a FAFSA prior to borrowing a Federal PLUS Loan; however, schools have the discretion to require Federal PLUS Loan applicants to submit a FAFSA before certifying a Federal PLUS Loan application. Interested applicants should check with the school to determine its policy.
For FAFSA filers, the school must determine the student's eligibility for a Federal Pell Grant and must include any Federal Pell Grant eligibility in the student's estimated financial assistance on the PLUS Loan application. In addition, the school may also determine the student's eligibility for subsidized and unsubsidized Federal Stafford Loan before certifying the Federal PLUS Loan application. However, a parent does have the option of borrowing the amount of the student's Federal Stafford eligibility in a Federal PLUS Loan, if he or she chooses.
The repayment period for Federal PLUS Loan borrowers begins on the day the loan is fully disbursed. Unless the parent borrower qualifies for a deferment, the first payment of interest and principal is due 60 days after the loan is fully disbursed. There are deferment provisions related to the parent borrower's circumstances. Deferment of Federal PLUS Loans is for principal only; the borrower must pay all of the interest that accrues on the loan after it is disbursed. However, a lender may agree to capitalize interest (add it to loan principal) when the repayment of principal resumes. Conditions for deferment include when the parent borrower is unemployed or is experiencing economic hardship. Enrollment by the parent in a postsecondary school may, under certain conditions, also qualify the parent for a deferment of repayment.
Adapted with permission from "Financing Education Beyond
High School,"
a presentation by the National Association of
Student Financial Aid Administrators.