PLUS Loans

The U.S. government offers a loan for parents of a dependent student called the Direct PLUS Loan. Parents and students must meet specific criteria - and in order to qualify, must fill out a Direct PLUS Loan Application and Master Promissory Note. The PLUS loan does not have a deferment period, which means that the loan repayment begins immediately upon receiving the loan. Because it is a federally funded loan, the PLUS loan has a long-term repayment period and very low interest rates. Unlike a Perkins loan or Stafford loan, they do not base PLUS loans on financial need. There are PLUS loan consolidation programs that offer fixed interest rates that are extremely low. 

Although any parents or grandparents can apply for a Plus Loan, they do require a good credit rating, however parents cannot be turned for a PLUS loan based on income level. Repayment of PLUS loans start two to three months after receiving the loan and there are fees and charges associated with missed or late payments. Once the student and parents submit the Free Application for Federal Student Aid and the government reviews it, they will get a Student Aid Report. This is the report required to apply for a PLUS loan.

In the past, many parents would use home equity loans, other investments or even second mortgages to help cover the expenses of college or university. Most financial advisors will tell you the advantage to getting a PLUS loan is that parents won't have to refinance their home or take out high-interest loans to pay for college. They design PLUS loans specifically for parents helping with their sons or daughters college expenses. Parents getting this loan do not have to refinance and can keep saving their investments for other needs. Unlike typical loans, there is no collateral required for a PLUS loan. One of the features of a PLUS loan is that even if the student's parents paid the education expenses and tuition for their child, they can still get a PLUS loan.

A Grad PLUS loan is a federal student loan available for students wanting to continue their education at the graduate level. Students can finance their complete graduate work costs with federal aid and use the loan for associated expenses such as books, supplies and other materials. Students can choose to postpone repayment of their Grad PLUS loan until after graduation. Federal loan consolidation may be available for Grad PLUS and PLUS loan borrowers.

For more information on PLUS loans visit the Federal Student Aid website and SallieMae.com.

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