For parents with acceptable credit who need help paying for their child’s college, parent PLUS Loans can be a very good option. PLUS Loans are federal loans and currently have a fixed interest rate of 7.9%. These loans can help a parent make college more affordable by spreading out college costs over at least 10 years. Smart use of PLUS Loans can help parents avoid depleting long-term financial resources, such as home equity or retirement plans, in order to pay for college.
How much can you borrow?
PLUS Loans are available to cover up to the full cost of attendance, minus any financial aid received by the student. For example, if college costs $20,000/yr and the student has been offered a financial aid award of $12,000, the parent is eligible to request a PLUS Loan of up to the amount of $8,000 for that year.
Key Facts about PLUS Loans
- In most cases parents must pass a simple credit check or have a creditworthy relative or friend who agrees to endorse the loan and repay the loan if your parents fail to do so. The credit check only tests for adverse credit history (such as default on a prior federal student loan), not for a favorable credit score or debt-to-income ratio.
- The borrower of the PLUS Loan has the option of beginning repayment either 60 days after the loan is fully disbursed or waiting until six months after the student is no longer enrolled on at least a half-time basis.
- Stafford Loans offer lower interest rates than PLUS Loans, so it’s usually best to maximize Stafford Loan limits before using the PLUS Loan.
How to Apply
- Complete the FAFSA.
- After reviewing the student’s financial aid award, determine whether you’ll need a PLUS Loan to help pay for the school.
- Contact the school’s financial aid office and request a PLUS Loan application and promissory note.
Students whose parents are denied a PLUS Loan will be eligible for additional unsubsidized Stafford Loans. Also, private loans can be used if PLUS Loans aren’t an option, or if you find that the borrowing limits on federal loans aren’t enough to cover your college costs.