Description: A federally insured loan program available from state agencies, banks, lending companies, and directly from some colleges.
Availability: A Direct PLUS Loan is available from the U.S. Department of Education.
Applications for a FFEL (Federal Family Education Loan Program) PLUS
Loan are submitted by a college financial aid office to banks and other lenders.
Eligibility: Parents or legal guardians of a dependent student enrolled
in an undergraduate program. Loans are not need-based.
Borrowers must not have a history of credit problems; parents cannot
be turned down if they have no credit history at all. If parents or guardians
do not pass the credit check they may still be able to receive a PLUS loan
if a creditworthy family member or friend endorses the loan—promising to
repay the note in case of failure to repay.
Loan amounts: No minimum; maximum amount is up to the cost of
attendance (including tuition, room, board, fees, supplies, and travel) minus
any other financial aid received.
Disbursement: In most situations the funds are sent directly to the
college in at least two installments based on the school’s billing cycle. If the
amount borrowed is greater than the outstanding balance owed the school, the
parents (or the student, if authorized) will receive the extra funds as a check
from the school. Any such excess funds must be used for education expenses.
Tax issues: Limited federal tax deductibility, depending on family
income, under the HOPE Education Tax Credit.
Interest formula: Variable rate based on the most recent sale of ninetyone-
day Treasury Bills held prior to June 1 of each year, plus a margin. Rates
become effective on July 1 of each year. In 2006, the margin above the index
was 3.1 percent and the variable interest rate was guaranteed not to exceed 9
percent. Rates in 2006 worked out to 6.1 percent.
Fees: The guarantee and origination fees cannot exceed 4 percent, and
some lenders will offer lower fees. Fees are deducted from loan proceeds at
the time of disbursement. In other words, if you are borrowing $10,000 and
the fees are 4 percent, you (or rather, the college) will receive $9,600, but you
will start out owing the full amount.
Repayment: Repayment period of as much as ten years with no penalty
for prepayment. Billing for principal and interest begins within sixty days
of final disbursement to the college. Under certain circumstances, including
unemployment and illness, the borrower may request a temporary deferral (or
forbearance) of principal and interest payments, although interest continues
to accrue.
There are several repayment plans:
• A ten-year plan with a minimum monthly payment of $50, with
the amount based on a prorated portion of the total amount due
• A graduated monthly payment plan that starts out low and
increases gradually during the repayment period
• An extended plan that spreads out repayment of the principal
over a longer period
Certain FFEL PLUS lenders will also offer another option:
• A plan that adjusts the monthly payment based on family income
Special programs: Some state agencies, state colleges, and other lenders
may offer interest rates discounted below the official index plus margin. Some
lenders may offer additional interest rate deductions for automatic payment
from a checking or savings account.
How to apply: For a Direct PLUS Loan, a combined application and
promissory note is available through college financial aid offices.
For a FFEL PLUS Loan, parents must fill out an application available
through the college financial aid office; after the school certifies the application,
it is made available to lenders for evaluation.
Read More : PARENT LOAN FOR UNDERGRADUATE STUDENT (PLUS) PROGRAM
