Overview:Federal PLUS loans can be used to reduce a family’s immediate out-of-pocket college costs to nearly zero. There is no dollar limit to these loans, with the loan amount being based on the remaining costs a student has after all other financial aid.
PLUS loans are not subsidized by the government, and are subject to higher interest rates than Stafford Loans. Further, repayment begins while a student is still enrolled in school.
Borrowing Limits:There is no borrowing limit to Federal PLUS loans. The actual loan amount is determined by subtracting a student’s existing financial aid package (other loans, scholarships, and grants) from their total cost of education for that year.
For example, if a student’s educational costs for a year were $20,000, and they had been awarded $15,000 in other financial aid, they would be eligible for a $5,000 PLUS loan.
In addition to there being no annual loan limit, there is also no lifetime cap on PLUS loans.
Undergraduate versus Graduate PLUS Loans:PLUS loans for undergraduate studies are actually made to the parents, not the students. In other words, repayment is the responsibility of the parent who applies for the loan. This differs from Stafford Loans, which are the responsibility of the student.
PLUS loans for graduate school are made to the student, and are the responsibility of the student.
Direct PLUS Loans versus FFEL PLUS Loans:There are two primary lending channels available for parents and students seeking PLUS loans. The William D. Ford Direct Loan Program makes Federal money available directly through certain schools. The Federal Family Education Loan program (FFEL) makes money available through private lenders.
The primary difference between these two programs is the rate of interest charged on the loans. The Direct Program charges slightly less than the FFEL program, both of which are still noticeably higher than Stafford Loans.
Interest Rates and Fees:For loans issued prior to July 1, 2006, the rate “floats” based on a formula that includes the rate for Treasury Bills. For Direct PLUS loans issued after this date, the rate is currently fixed at 7.90%. For FFEL PLUS loans issued after this date, the rate is currently fixed at 8.50%.
There is also a fee for Federal PLUS loans similar to an ”origination fee” on a mortgage, which can be as high as 4%. This amount is deducted proportionately from each disbursement check.
Repaying PLUS Loans:Repayment of all PLUS loans begins 60-days after the loan is completely disbursed. In other words, repayment begins while a student is still in school. There is no “grace period” for PLUS loans.
PLUS Loans allow you to choose a repayment plan that might include:
- Even payments over 10 years
- Increasing payments over 10 years
- Even or increasing payments over 25 years (loans over $30,000)
- Income-sensitive payments
Applying for a Federal PLUS Loan:The PLUS Loan program does not require you to fill out a FAFSA form to apply. However, many schools will still require the FAFSA to process your other financial aid options, upon which your PLUS loan amount is calculated. In short, it’s in your favor to fill out the FAFSA form annually.
The application that you fill out for a PLUS loan will depend on the type of PLUS loan you are applying for (Direct of FFEL). For Direct Loans, a participating school will provide you with the application. For a FFEL loan, your financial aid office will likely provide you with a list of lenders.
To qualify for a Federal PLUS loan, a student must be enrolled at least half-time, and the person applying for the loan must pass a credit check. Parents denied for a PLUS loan can apply for additional funds from the Stafford Loan program.