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What is a Parent Plus Loan?Apr 22 '01 Write an essay on this topic.The Bottom Line Great care should be taken before applying for a Plus Loan as it can get expensive After writing my last review on what is a Stafford Loan, I received over 35 e-mails from parents and future college students ranging from thanking me for the information to many varied questions on financing a college education. I was truly amazed at the e-mails as well as the over 225 people who have so far read my review. To say the least I was delighted. Quite a few people asked me for information on PLUS LOANS so I figured there must be many other people who have the same general questions and I decided to try to explain it here. Federal Parent Loans for Undergraduate Students (PLUS) are loans made to parents used to pay for their children's higher education. Lenders prefer PLUS loans to all other types of educational loans due to the fact that parents start paying the loans back usually within 6 months of the date the loan is disbursed to the school. Therefore, if the money is sent to the school in August you can figure on payments beginning the following February.There are two different types of Plus Loans They are Plus and Direct Plus. The difference is where the money comes from. PLUS loans come form private sources such as banks while Direct PLUS loans are federal funds disbursed by you college financial aid office. There are no other major differences between the two types. Your Financial Aid office will advise you as to which method is the approved method by the school. You are permitted to borrow up to the full amount of the total cost of education for the year minus other monies that might be received. Included in the total cost, is tuition, room and board even if the student is living off campus, and a few other smaller items. Let’s look at the following example: Tuition.......$19,000 Room & Board....7,500 Books.............700 Other expenses....500 Total..$27,000 Now we must subtract the following: Grants or Scholarships....$10,000 Stafford Loan...............2,650 Total Subtractions..$12,650 In this example the Maximum amount of a Plus Loan would be $14, 350. While this is the Maximum amount of the loan, you can borrow less. The interest rate for PLUS Loans was previously calculated annually by adding 3.1% to the 52-week U.S. Treasury Bill. Since they government has stopped selling one year US Treasury Bills this past year a new method will be announced shortly. Even with the change the maximum rate is capped at 9% for the life of the loan. There is a 3% one time origination fee paid to lender and a 1% insurance fee paid to the guarantee agency. However, some guarantee agencies waive the 1% fee and it is worth it to check if this option is available. PLUS Loans require parents to go through a simplified credit check. Thus the credit requirements for a PLUS Loan are much lower than those for commercial credit. Parents being rejected for a PLUS Loan can turn out to be a positive. If the loan is rejected make a copy of the rejection letter and send it to the college's financial aid office. This will allow you to borrow additional funds through the unsubsidized Federal Stafford Loan program. The Stafford program allows you to borrow at lower interest rates and also to defer payment. Once again I must emphasize that the Plus Loan, just like the Stafford Loan, is just that, a loan that must be repaid. This loan is only an option and while the rate of interest is fairly good, it should only be used if no other assets are available and all possible scholarship and grant monies have been researched and exhausted. Whatever you decide NEVER put the cost of tuition or room and board on a credit card!  |
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