A Simple Guide to Understanding PLUS Loans
Not too long ago, Doug Schantz of CheapScholar.org wrote a great post talking about the differences between private student loans and PLUS loans and what borrowers should consider before choosing one. PLUS and private loans are often compared to one another because both are supplemental educational loans, meaning that they are not included in the financial aid award letter and that both are usually considered as the last step in the financial aid process. It’s important to remember that all other Federal financial aid should be considered before applying for a PLUS or private student loan.
Below, we have provided a simple overview of PLUS loans. Additionally, we’ve published a helpful chart comparing private student loans and PLUS loans. If you have any questions, let us know in the comments!
What is a PLUS Loan?
A PLUS Loan is a Federal educational loan that is used to pay for college and college expenses. It must be repaid, and the interest that accumulates on a PLUS loan must be paid throughout the life of the loan (interest is not deferred).
Who can apply?
Parents of dependent undergrads and graduate students at US colleges (GradPLUS) may apply for a PLUS loan. The student must be enrolled at least half-time in order for his/her family to qualify.
How much can you apply for?
The maximum amount you can borrow on a PLUS loan is the total cost of attendance minus any other financial aid. There is no cumulative limit on how much can be borrowed.
What are the terms?
Interest must be paid for as long as the loan is outstanding. Currently, the interest rate on new PLUS loans is fixed at 7.9%, and there is a loan fee of 4% which is charged to each disbursement check. (Source: Finaid.org)
What is the application process like?
The PLUS loan is available to all families, regardless of financial need. But its interest rate is higher than the Federal Stafford loan’s rate, so it’s advisable that parents exhaust their Stafford loan options first.
You can apply for a PLUS loan via your student’s desired college; the colleges issue the promissory notes and PINS that are required to apply for PLUS loans.
Key points about PLUS loans:
- You can apply for the PLUS loan regardless of your financial need.
- Starting in 2011-2012, you must submit the FAFSA in order to apply for a PLUS loan.
- The PLUS loan application process includes a credit history review.
- The PLUS loan has a fixed interest rate of 7.9%, but students and parents who used the Student Loan Marketplace had an average (variable) interest rate last year of 6.12%. Consider your options and choose the one that is best for you and your family.
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