Q & A
Who is eligible to borrow through the federal PLUS program?
Creditworthy parents of dependent undergraduate students are eligible for PLUS. Since this is a federal loan, the parent borrower must be a U.S. citizen or an eligible non-citizen.
What are the credit criteria?
It is simply a check for “adverse” credit such as liens, foreclosures, bankruptcy or a recent record of late payments. There is no standard review of parent income or of family debt to income ratio. If your credit report is relatively clean, then you will likely qualify for a PLUS.
How much can a parent borrow?
For each academic year you can borrow up to the full cost of attendance, as established by the school, less any awarded financial aid. So, if the cost of attendance is $40,000 and the student receives $19,000 in financial aid, the parent can borrow up to $21,000 in PLUS.
What is the interest rate?
On August 9, 2013 President Obama signed the Bipartisan Student Loan Certainty Act of 2013 (PL. 113-28), changing how student loan interest rates are determined. The bill links interest rates on new federal PLUS loans to the 10-year Treasury rate, plus a fixed margin of 4.6%, capped at 10.5%.
The interest rates on new loans are still fixed for the life of the loan; however, each year’s new loans will have different fixed rates, based on current market rates. The interest rates on new Federal PLUS loans in subsequent years will change each July 1 based on the yield of the last 10-year Treasury auction in May.
The interest rate for PLUS loans disbursed between July 1, 2020 and July 1, 2021 is 5.3%.
Are there any fees?
Yes. The standard origination fee is 4%. But this fee was temporarily increased in August, 2011, when Congress passed the Budget Control Act of 2011, which put into place automatic federal budget cuts, known as a “sequester.” So, for PLUS loans first disbursed on or after Oct. 1, 2017, and before Oct. 1, 2018, the fee is 4.276%.
So, if you borrow $20,000, you will only receive a net amount of $19,145.
This is a big fee!
How is the loan disbursed?
The loan funds go directly to the school; half of the loan amount will be disbursed at the beginning of the enrollment period and half at the midpoint of the enrollment period. This means that if you borrow $20,000 to cover costs for a two semester academic year, $9,573 will disburse at the beginning of the first semester and $9,572 will disburse at the beginning of the second semester. The school sets the disbursement dates and will consider the PLUS funds as on time payment even though they typically disburse after the payment due date for the college bill.
What is the repayment period?
Generally, you will have from 10 to 25 years to repay your loan, depending on the repayment plan that you choose. The Direct Loan Program offers quite a few loan repayment plans designed to meet the needs of most borrowers. Parents can choose to repay PLUS Loans using the standard, extended, or graduated repayment plan. Read more about these repayment plans.
Can I switch from one repayment plan to another?
Yes, at any time, you can switch to a different payment plan, provided it is available for your Parent PLUS loan(s) under federal rules. There’s no fee for making the switch. All you have to do is contact your loan servicer to make the change.
When does repayment begin?
In standard repayment the first payment is due 60 days after the 2nd disbursement. So, for a standard September – May academic year the first payment will be in late February or early March.
There is an option to defer interest and principle payments until after graduation but this will increase the total amount to be repaid, since interest will accrue for an additional four years – assuming the student graduates on time.
Can I consolidate my Parent PLUS loan(s)?
Yes. Parent borrowers have the option of consolidating their PLUS loans into a Direct Consolidation Loan. Consolidation allows you to reduce your monthly payment by extending the repayment term to as long as 30 years, depending on your total education debt.
The repayment options for a Consolidation loan that pays off at least one Parent PLUS loan include equal-installment and graduated repayment options and the Income-Contingent Repayment Plan (ICR). Under ICR, your monthly payments are limited to 20 percent of your discretionary income (adjusted gross income minus the poverty threshold income for your household size).
Is the student responsible for repayment if the parent borrower can’t repay the loan?
No, PLUS is a parent loan. The parent borrower is responsible. Neither the student nor the students spouse will be required to repay the loan. The PLUS loan is a federal educational loan and is not automatically dischargeable through bankruptcy. PLUS loans are only discharged if a parent dies or becomes totally and permanently disabled. In some cases they are discharged when the student dies. Click on the link for more information on when a PLUS loan may be discharged.
Are my loan payments eligible for any tax benefits?
Yes, you can reduce your federal AGI by up to $2,500 per year of interest paid on student loans. The interest deduction is subject to a number of eligibility rules, including an income test, but, if you qualify, the deduction is easy to claim on your federal tax return.
Can a parent transfer the loan to the student in the future?
Only as a private arrangement between parent and child. Parent PLUS loans cannot be transferred from the parent to the child, nor can they be combined with the student’s federal loans through consolidation.
Can more than one parent borrow for the same student in an academic year?
Yes.
Can a parent borrow for more than one student in the same academic year?
Yes.
How do you apply for a PLUS?
Once you have a FSA ID, visit Studentloans.gov and start the application process.
Does the parent have to reapply each year?
Yes
Do we have to complete a FAFSA first?
Yes. But by completing the FAFSA the student becomes eligible for Federal Student Loans as well. Always accept the maximum federal student loan before borrowing PLUS since it is a much better deal. You can choose to help the student with their loan payments after graduation.
