A PLUS loan is a type of federal education loan from the Department of Education that's available to oldsters of undergraduate students and graduate or professional students. Interest and fees on PLUS loans are greater than other federal loans, so they normally are best to make an application for after depleting other federal student aid. Continue reading to learn what PLUS loans are and how they work.
What Are PLUS Loans?
PLUS loans are unsubsidized federal loans that help graduated pupils and parents of undergraduate students purchase tuition, fees, room and board and more. Here is a introduction to how parent PLUS and grad PLUS loans work:
- Parent PLUS loan: Biological or adoptive parents of dependent students can take out PLUS loans to cover school costs as long as the student is enrolled at least part time. Parents are responsible for paying down parent PLUS loans and never the student.
- Grad PLUS loan: Graduate and professional students can use grad PLUS loans to cover graduate or professional-level education that will lead to a certificate or degree. Students have to go to school at least part-time to qualify. The student is responsible for repaying your debt.
For both kinds of PLUS loans, the utmost you are able to borrow may be the “cost of attendance” less every other educational funding the student is rewarded. Which means that you may qualify for different levels of PLUS loans at different schools. PLUS loans are unsubsidized, so interest starts accruing soon after you borrow.
How to Qualify for PLUS Loans
The applying process for direct PLUS loans is not the same as other federal loans. For just one, you have to fill out an additional form outside of the Free Application for Federal Student Aid (FAFSA) to request PLUS loans. And unlike other federal loans, a credit check happens during the application, and applicants with adverse credit history might not qualify.
Bad credit history includes recent delinquency or bankruptcy, repossession, wage garnishments, tax liens or foreclosure in your credit history. However, for those who have an undesirable credit history, you might be able to get approved for PLUS loans by adding an endorser to your application that has good credit history.
Here's how the application process works for PLUS loans:
- Fill the FAFSA. If you're a parent getting PLUS loans for a student, the dependent student should still fill out the FAFSA. Before applying for grad PLUS loans, you should also first complete the FAFSA.
- Go to StudentAid.gov. The Department of Education includes a PLUS loans webpage where one can start the applying process.
- Enter student and borrower information. The PLUS loan application asks for details about a student and borrower. For graduate PLUS loans, the borrower and student information would be the same; for parent PLUS loans they'll be different. Then you'll see some loan options, including the choice to borrow the maximum available or perhaps a specific loan amount.
- Get the outcomes. A credit assessment happens at the end of the application, and you can get one of three responses: accepted, declined or pending. If you're declined from your credit, you can add an endorser or submit paperwork to explain the reason behind your bad credit history. If there are special circumstances that resulted in credit history problems, such as a divorce or id theft, you may be able to get approved after completing PLUS credit counseling.
- Sign the promissory note. The final step is filling out the master promissory note to verify your promise to settle the debt.
How to Repay Plus Loans
StudentAid.gov offers three repayment terms for PLUS loans:
- Standard repayment plan: A 10-year repayment term which has fixed costs.
- Graduated repayment schedule: Another 10-year repayment term, but payments begin smaller and increase every two years.
- Extended repayment plan: A longer-term repayment plan that provides borrowers with more than $30,000 in loans up to Twenty five years to pay off the debt.
Additionally, grad PLUS loans are eligible for all income-driven repayment (IDR) plans that set your payment to a percentage of discretionary income. On the other hand, parent PLUS loans are just entitled to the Income-Contingent Repayment (ICR) plan once consolidated having a direct loan consolidation.
Should You Get a PLUS Loan?
The eligibility criteria for PLUS loans isn't too stringent, but you may still find some disadvantages to think about before with them to cover instruction. Here is a breakdown of the great and bad:
Pros
- Versatile loans: If you are a grad student that has at their maximum on other aid (or else you want to split education costs with your child), PLUS loans provide a method to finance school costs.
- Deferment and forbearance available: Like other federal loans, PLUS loan repayments might be deferred while the student is within school and for as much as six months following the student leaves school. Should you face financial hardship, you could also have the ability to qualify for forbearance.
- Multiple repayment options: Parent PLUS loans are eligible for that ICR plan after consolidation, and grad PLUS loans may be eligible for a all income-driven repayment plans.
Cons
- Unsubsidized loans: Borrowers are responsible for paying interest on unsubsidized PLUS loans in times of deferment and forbearance, and interest starts accruing as soon as you borrow. If you don't make at least interest payments when you or even the student is in school, capitalized interest can grow your balance making it harder to pay off.
- Higher loan fees: PLUS loans have a higher origination fee than other federal loans. Currently, the upfront fee for PLUS loans is 4.228% in contrast to 1.057% for direct subsidized loans and direct unsubsidized loans.
- Higher loan interest: PLUS loans also have a higher rate of interest than other federal loans. Currently, the interest rate for PLUS loans is 7.54%. In comparison, direct loans for undergraduate and graduate students have an interest rate of 4.99% and 6.54%, respectively.
The Bottom Line
Federal loans are generally one among the greater affordable methods to finance instruction, but PLUS loans come with higher fees and interest than other federal loan options, that is important to factor in before borrowing.
Suppose you've good or excellent credit and do not foresee yourself needing federal loan perks, like loan forgiveness or income-driven repayment plans. In that case, it could be worth exploring private education loan options too. Private student education loans could include lower rates of interest, saving you money and assisting you repay debt faster.
Using Experian CreditMatchTM, you can get personalized private loan offers to compare against PLUS loans to determine why is probably the most financial sense.