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Parent Loans vs. Student Loans

parent vs. student loans

Federal PLUS Loans Are a Big Plus for Parents and Students

Federal PLUS Loans, or Parent Loans for Undergraduate Students are federal loans that are made to parents to help finance a child's education. Financial need is not required to be eligible for a college PLUS Loan, but good credit is. And although it's not required when applying for a PLUS Loan, students are encouraged to submit a FAFSA (Free Application for Federal Student Aid) to maximize the other aid your family is offered.

  • Borrow the entire cost of undergraduate education
  • Help Build your Son/Daughter's credit score
  • Co-signer release upon qualification
  • Up to 0.25% interest rate reduction.

Federal PLUS Loans are available to parents of undergraduate students who are enrolled in an undergraduate degree school at least half time. There are two types of PLUS Loans, Direct and FFEL (Federal Family Education Loan). For Direct PLUS Loans the U.S. Department of Education is the lender. FFEL PLUS Loans are available through a private lender such as a bank. In order to apply for either, your parents must submit one of two different loan applications. If your school participates in the Direct PLUS Loan program, a Direct PLUS Loan application and promissory note must be completed and signed. If your school participates in the FFEL PLUS Loan program a FFEL PLUS Loan application will be required.

With the exception of interest rates, both the Direct and FFEL PLUS Loans have the same limitations and requirements:

  • Parents can borrow only the amount necessary to fund education costs. The formula the government uses is the student's Cost of Attendance (an estimate of how much one year at the school will cost including tuition, room and board, living expenses, books and supplies, and transportation) MINUS other aid received (grants, scholarships, etc.). So if your cost of attendance is $30,000 and your other financial aid totals $18,000 your parents can take a PLUS Loan out in the amount of $12,000
  • Fees of up to 4% of the loan apply
  • Repayment starts within 60 days of loan disbursement
  • Federal interest subsidies are not available for any PLUS Loans
  • Interest rates change annually. For the 2012-2013 school year FFEL PLUS interest rate is 8.5% and the Direct PLUS rate is 7.9%
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Federal PLUS Loan monies are sent directly to your school, although the school may require your parents to endorse the check. At that time the loan will be disbursed and applied to your tuition and other direct school costs. If after paying these costs additional loan funds remain, your school may cut a check to your parents for the remainder. If your parents authorize the school to do so, they can also release the funds directly to you or credit your school account.

In many cases parents seek out federal PLUS Loans to make up the gap between what their student received directly in aid and what they can afford to pay. If a college PLUS Loan is not an option or if a family still needs additional funding, parents and students can financial assistance through a private or alternative loan program.

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