An Overview of Parent PLUS Loans

The Parent PLUS loan program is a federal loan program that allows your parents to borrow up to the cost of attendance (COA) for your college education. The Parent PLUS loan is only available to parents with children pursuing

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undergraduate studies. For graduate students, there are PLUS loans for graduate and professional students.

FFELP vs. Direct

As with Stafford loans, PLUS loans are administered through the FFELP and Direct Loans programs. Each college decides which program it wants to use for its students and their parents. Most colleges participate in one program or the other, but some actually participate in both.

Under the FFELP program, your parent will get their PLUS loan from a lender (like Discover Financial Services, Sallie Mae, or CitiBank). In this situation, your parent needs to make a decision about which lender is the best option. Colleges will often present you and your parents with a Lender List containing information about the Parent PLUS loans offered by various lenders. Your parents have the option of picking a lender off this Lender List or going with another lender that they may have uncovered in their research.

PLUS Loan Limits

PLUS loan limits are fairly generous. You can borrow up to the cost of attendance minus any other financial aid you are receiving. To give an example, if school costs $10,000 and you won $2,000 in scholarships and have a $3,500 Stafford loan, you could borrow up to $4,500 through the Parent PLUS loan program ($10,000 - $2,000 - $3,500 = $4,500).

PLUS Interest Rates

The interest rate on Parent PLUS loans is fixed. If your school uses the Direct Loans program, the interest rate is 7.90%. For FFELP schools, the rate is 8.50%.

Upfront Fees on Parent PLUS Loans

Parent PLUS loans may have an origination and a federal default fee. The origination fee can be up to 3% and is used by a lender to cover administrative costs. The federal default fee can be up to 1% and is intended to fund services to help student-loan borrowers who experience difficulty making their payments so they can avoid some of the expense and consequences of defaulting on their loans. Both fees are deducted from the principal, meaning the amount you borrow and the amount you actually receive will be different. Some lenders may cover all or a portion of these fees. Zero-fee loans are ones where the student does not have to pay either an origination or default fee.

Repayment of Parent PLUS Loans

The first payment for a Parent PLUS loan is generally due within 60 days of full disbursement of the loan. Unlike Stafford loans, there are no grace periods for Parent PLUS loans and interest begins to accumulate once the first disbursement has been made. In other words, your parents will be paying this loan back while you are in school. If they don't start paying it back after 60 days, the interest will start to capitalize, making the loan more expensive.

Applying for a Parent PLUS Loans

Your parents will need to complete a PLUS loan application and sign a master promissory note. Unlike Stafford loans, completing the FAFSA is not needed to apply. However, your parents will need to pass a modest credit check for approval.