PLUS loans

Definition

PLUS loans, or Parent Loan for Undergraduate Students, are federal loans that parents can take out to help pay for their child's college education. These loans are designed to cover the remaining costs of attendance not covered by other financial aid, such as scholarships or grants. They have specific eligibility criteria and offer a fixed interest rate, which makes them a popular option for families looking to finance higher education.

5 Must Know Facts For Your Next Test

1. PLUS loans are available to parents of dependent undergraduate students and can cover the full cost of attendance minus any other financial aid received.
2. The interest rate on PLUS loans is fixed and can change annually; however, once a loan is taken out, the interest rate remains constant for the life of that loan.
3. Borrowers must pass a credit check to qualify for a PLUS loan, meaning those with adverse credit history may be denied.
4. Repayment for PLUS loans typically begins immediately after the loan is fully disbursed, although parents can request deferment while their child is enrolled in school.
5. Parents can borrow up to the full cost of their child's education, but they must be aware of the potential financial burden this may impose after graduation.

Review Questions

• How do PLUS loans differ from other types of federal student loans in terms of eligibility and borrowing limits?
  • PLUS loans are specifically designed for parents of dependent undergraduate students, whereas other federal student loans are often issued directly to the students themselves. Unlike Direct Subsidized and Unsubsidized Loans, which have specific borrowing limits based on the student's year in school and financial need, PLUS loans allow parents to borrow up to the total cost of their child's education minus any other financial aid received. This difference in eligibility and borrowing limits highlights how PLUS loans serve as an additional resource for families financing higher education.
• Evaluate the implications of fixed interest rates on PLUS loans compared to variable-rate loans in student financing.
  • The fixed interest rates on PLUS loans provide predictability for borrowers, ensuring that monthly payments remain stable throughout the repayment period. This contrasts with variable-rate loans that can fluctuate over time, potentially leading to higher payments if interest rates increase. The stability offered by PLUS loans can help families better budget their finances while managing educational expenses. However, borrowers should still consider the overall cost of borrowing when evaluating their financing options.
• Critically assess how eligibility requirements for PLUS loans impact family financial planning for higher education.
  • Eligibility requirements for PLUS loans, particularly the credit check, significantly influence how families plan for college expenses. Parents with adverse credit histories may face challenges in obtaining these loans, which could limit their ability to finance their child's education adequately. This creates disparities among families based on creditworthiness and could lead to increased reliance on alternative financing options or a heavier burden on students through private loans. Understanding these implications is crucial for effective financial planning in preparing for college costs.

Related terms

Federal Direct Loan: A type of federal student loan that is made directly by the U.S. Department of Education to students and parents to help cover the cost of college.

Interest Rate: The percentage charged on a loan that determines how much extra money will be paid back over the life of the loan.

FAFSA: The Free Application for Federal Student Aid, a form used to apply for financial aid for college, which determines eligibility for federal loans, grants, and work-study programs.