PLUS Loans - it's never too late to subsidize your child’s education cost
By Vanessa McHooley
PLUS Loans - it's never too late to subsidize
your child’s education cost
Rising. Soaring. Skyrocketing. These are
the words that seem to begin every article
about college tuition costs - and they are
words guaranteed to make every parent cringe.
According to the College Board, costs for
the 2004-2005 school year at four-year private
colleges are up 6%, while costs at four-year
public colleges are up 10.5%. Scary? Yes.
Impossible to handle? No!
The good news is that there is more
financial aid available than ever before.
One of the most interesting financial
aid options is the Parent Loan for Undergraduate
Students, or PLUS Loan.
What is a PLUS Loan?
PLUS Loans are federal loans taken out
by parents to help pay their children’s
college costs. PLUS Loans offer several
advantages:
Interest rates are adjusted each year,
but are consistently kept low. For the
2004-2005 school year, the interest rate
is 4.17%. It is capped to never exceed
9%.
Financial need is not a determining factor
in receiving a PLUS Loan.
No collateral is required.
There is no penalty for early repayment.
Loans can be consolidated.
If you are eligible, up to $2000 in interest
may be tax-deductible under the Hope Education
Tax Credit.
Who is eligible for a PLUS Loan?
If you are a parent with dependent students
attending college at least part-time,
you are eligible to receive a PLUS Loan.
You do need to have a good credit history.
The following credit issues will reduce
your chances of getting a PLUS Loan:
Bankruptcies
Defaulted loans
Payments overdue by 90 days or more
High debt-to-income ratio
If you are turned down for a PLUS Loan
because of poor credit history, you can
find someone to co-sign the loan with
you and then apply again.
How much can I borrow with a PLUS Loan?
You can borrow up to the total cost of
undergraduate education expenses, minus
other financial aid already received.
Expenses can include tuition, room and
board, supplies, lab expenses, and travel.
How do I apply for a PLUS Loan?
You can apply for a PLUS Loan through
the Federal Family Education Loan (FFEL)
Program or through the William D. Ford
Federal Direct Loan (Direct Loan) Program.
FFEL loans come from private lenders or
loan servicers, such as your bank. PLUS
Loan applications are available from your
school or your lender. To apply for an
FFEL PLUS Loan, you complete the application
and then submit it to your school. The
school completes its portion of the application
and sends it to the lender for approval.
Direct loans come from the U.S. Department
of Education’s Direct Loan Servicing Center.
To apply for a Direct PLUS Loan, you complete
a Direct PLUS Loan application and promissory
note and submit it to your school’s financial
aid office. This form is available from
your school’s Financial Aid Office.
You can take out one loan per enrollment
period for each eligible student in your
family.
PLUS Loans do require an application
fee of up 4% of the principal of the loan.
These fees are deducted from the loan
principal, so no up-front money is required.
The fee includes a 3% origination fee
charged by the federal government and
a guarantee fee of up to 1% charged by
the guarantee agency. However, most guarantors
waive the guarantee fee.
How are PLUS Loan funds disbursed?
Funds are sent directly to the school’s
financial aid office for scheduled payments
over the course of the academic year.
As with other federal loans, there are
usually at least two disbursements, one
for each school term.
The funds are first applied to tuition,
fees, room and board, and other school
charges. If any money remains, you can
receive it as a check or you can put it
in your student’s school account. This
remaining money must be used for education
expenses.
When do I repay PLUS Loans?
You start paying back PLUS Loans 60 days
after the final disbursement of the school
year. So, if the final disbursement is
made in January, as is typical, repayment
generally begins in late February or early
March. PLUS Loans are the financial responsibility
of the parents, not the student. If the
student agrees to make payments on the
PLUS Loan but fails to make the payments
on time, the parents are held responsible.
What is the difference between PLUS Loans
and other student loans?
The other student loan generally available
to students is the Stafford Loan. The
table below illustrates the similarities
and differences between these two loan
programs:
PLUS Loan
Federally guaranteed
Made to parents of dependent students
Interest rate is low, but not as low
as a Stafford (currently 4.17%)
Repayment begins 60 days after final
disbursement for the academic year
Loan borrowing can be up to 100% of college
education costs
Stafford Loan
Federally guaranteed
Made to students themselves
Interest rate is lowest available (currently
3.37%
Repayment begins six months after graduation
or leaving school
Loan borrowing is capped:
$2,625 for first-year undergraduates
$3,500 for second-year undergraduates
$5,500 for third- and fourth-year undergraduates
Loan can be needs-based and requires a
FAFSA
Interest charges do not begin until repayment
begins, after graduation
This article is distributed by NextStudent.
At NextStudent, we believe that getting
an education is the best investment you
can make, and we're dedicated to helping
you pursue your education dreams by making
college funding as easy as possible. We
invite you to learn more about PLUS Loans
at http://www.NextStudent.com.
About The Author
Vanessa McHooley
My goal is to help every student succeed
- education is one of hte most important
things a person can have, so I have made
it my personal mission to help every student
pay for their education. Aside from that,
I am just a pretty average girl from SD.
http://www.nextstudent.com/
