What is a PLUS Loan?
The Parent Loan for Undergraduate Students, or PLUS, is a low-interest federally backed loan that parents can take out on behalf of their undergraduate children to pay for educational costs. Parents can take out amounts up to the cost of attendance, less other aid received. Parents may also access a private loan (no involvement of the federal government), either as a borrower or as a cosigner with the student borrower.
Experts suggest that about 20 percent of applicants for a PLUS Loan are denied, as they have a severe financial hardship in the recent past that makes them a poor credit risk. But those who do get a PLUS Loan are provided with a sum that could cover a student’s tuition and other associated costs. The loan is supplied directly to the school, so the parent doesn’t need to manage the sums as they come in and go out, and parents can amend the amount that they borrow by rejecting some disbursements.
Loans like this come with some tight restrictions, according to the U.S. Department of Education, including rules that dictate that the loan balance stays in the name of the parent. The loan can’t be transferred to a student, even if the parent/child relationship deteriorates and the parent no longer wants to work with the child on an education. But this could be a good option for families in need of a little assistance with education funding.
For Advanced Students
Some students complete their educational experience in 2-year and 4-year institutions, but others choose to go forward and learn more in professional degree programs or graduate schools. These students may have exhausted all of the other sources of financing available to them, including those provided by:
These students may apply for PLUS Loans. The money will go directly from the lender to the school, so the student won’t be required to manage the disbursement, but the loan will be held in the student’s name, and the obligation to pay back those loans will be the responsibility of the student.
When do I have to begin repaying my PLUS loan?
In most cases, the first payment is required within 60 days after the final loan disbursement for the enrollment period for which you borrowed. Some servicers will offer to defer payment of these loans while the student is attending school at least half-time. There is currently no provision for a grace period on the PLUS loan, which means that parents would begin repayment immediately upon graduation or if the student were to drop below half-time status. As with other federal loans, however, parents may be eligible for an economic hardship forbearance.
Is there a credit check for GradPLUS loans?
Yes, there is a credit check for GradPLUS loans that primarily checks for any signs of “adverse credit.”
A GradPLUS loan applicant is considered to have adverse credit if any of the following conditions apply:
- The applicant is 90 days or more delinquent on the repayment of any debt
- The applicant has had any debt discharged in bankruptcy during the 5-year period before the date of the credit report
- The applicant has been the subject of a default determination on any debt, a foreclosure, a tax lien, a repossession, a wage garnishment, or a write-off of a Title IV debt during the 5-year period before the date of the credit report
- The lender must obtain a credit report on the borrower from at least one major credit bureau
- If a student is turned down for credit, the student may chose to appeal the decision to the individual’s lender (each lender will have a different appeal process) or re-apply with an endorser
- The absence of a credit history is not considered adverse credit
Legislative Update: Effective October 1, 2011, unpaid collection accounts and charge-offs represent debt that is delinquent for more than 90 days. Prior to that date, those accounts were not considered adverse credit. Now that they are, if you have unpaid collection accounts or charge-offs it may influence your ability to borrow a GradPLUS loan.
Should I choose GradPLUS or a private loan?
- You are comfortable with the possibility of interest rates increasing beyond the interest rate cap of the GradPLUS loan
- You have top-tier credit – at this point in time, these borrowers will presently be charged less interest, but if interest rates continue to climb, this benefit decreases or disappears altogether
- You believe that there is very little possibility that you may use the deferment or forbearance options
- You plan to only borrow the loan for a short time
- You like the certainty that a fixed-rate loan provides
- Your credit is good, fair, or poor–your cost will likely be lower
- You like the protection that the greater deferment and forbearance options provide
- The repayment incentives offered may bring the repayment interest rate cost to less than 6.84%
What are my repayment options for GradPLUS loans?
The repayment plans for Stafford and the Parent PLUS are also available for GradPLUS.
- Level Payment Plan: equal monthly payments over the term of the loan
- Graduated Repayment Plan: two years of interest-only payments, followed by increased payments covering interest and principal for the remainder of the loan
- Income Contingent Repayment Plan: payments adjusted to the borrower’s income
- Extended Repayment Plan: payments can be extended up to a 25 year term
- Income-Based Repayment Plan: payments adjusted to the borrower’s income with more generous options than the Income Sensitive Plan