Every year, thousands of students find out that they don’t qualify for enough federal student aid to pay for their entire tuition. Fortunately, though, dependent students’ parents can help them out with parent PLUS loans from the federal government.
A Parent PLUS loan is an unsubsidized, low-interest direct loan from the federal government. It’s awarded to graduate students and to parents of dependent undergrads, and it is designed to cover all expenses for tuition and fees that are not covered by other financial aid. Though interest is charged throughout the period of the loan, your parents won’t have to start paying their PLUS loan back until after a six-month grace period once you leave school.
Who Qualifies for a Parent PLUS Loan?
To qualify for parent PLUS loans, the applicant has to be your biological or adoptive parent. A stepparent may also apply for a PLUS loan to fund your college, as well. For your parent’s PLUS loan to be approved, you need to be enrolled at least half-time in a school that participates in the federal Direct Loan Program (most schools do). You’ll also need to make sure that you’ve listed yourself as a dependent and supplied your parent’s income and tax information on your FAFSA before they apply for a Parent PLUS loan.
In addition to these requirements, your parent must pass a credit check. Parent PLUS loans are the only federal loans that require a credit check, as they are awarded to cover the gap between need-based financial aid and remaining tuition and fees. As a result, Parent PLUS loans are often much larger than other direct student loans and involve more risk for the federal government.
To pass the credit check, your parents must be US citizens or legal and eligible noncitizens living in the United States, and they must not be in default on any other federal student loans or owe any over payments on any federal student grants. Basically, they need to meet the requirements for eligibility for any Federal Student Aid program.
This is actually easier than qualifying for a low-interest private loan in most cases. And, in cases where a parent does have an adverse credit history and does not qualify on their own, they can get an endorser with good credit to vouch for them so that they can still borrow a PLUS loan for your education.
How Can My Parent Apply for a Parent PLUS Loan?
After you’ve completed your FAFSA (Free Application for Federal Student Aid), your parent will need to go to StudentLoans.gov, select the “Parent Borrower” tab, and then select “Request a PLUS loan”. They will also need to complete and sign (or e-sign) a PLUS loan Master Promissory Note (MPN), a legal document that basically states that they promise to repay all of their federal student loans, including all accrued interest and any fees.
With your FAFSA, your parent’s PLUS loan request, and their MPN, you should have completed everything necessary to get your tuition and educational expenses taken care of. Your parent should not have to repeat another MPN for any of your loans (with the exception of some schools, which do require separate MPNs for separate loans on the same student’s account). However, they will need to renew their parent PLUS loan each year, just as you renew your FAFSA.
Restrictions on Parent PLUS Loans
There is no set cap on parent PLUS loans, but your parent’s loan may not exceed the cost of your tuition minus any other financial aid you receive. Each semester, your loan will be disbursed to your student account and used to pay for your tuition and applicable fees.
After that, any excess will be disbursed to your parent. This money is only to be used on academic expenses. Your parent may either use it to pay for supplies and other fees for you, or they may transfer the money to you so that you may use it to cover these expenses.
What Kind of Interest Rate Can You Expect?
The interest rate for parent PLUS loans is capped at 10.5%. It’s also a fixed rate loan, so once your parent signs they’ll be locked into that rate for the duration of the loan. The rate for PLUS loans in 2013 was 6.41%, and last year in 2014 it was 7.21%.
As you look into your options for funding your college career, talk to your parents about PLUS loans versus private loans. Parent PLUS loans carry with them all of the benefits of federal loans (fixed interest rates, repayment options, etc.), but they may have some disadvantages for some borrowers, as well.
If you can find a fixed rate loan at a lower percentage rate, be sure to read all of the details and requirements to ensure that you aren’t signing onto a deal that will hurt you if you or your parents fall on hard times.
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