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Unlike Stafford loans, federal PLUS loans are made to parents and aren't part of the family's financial-aid package. (PLUS stands for Parent Loans for Undergraduate Students). Under this federal program, parents can borrow up to the full cost of attendance at a college, minus any other financial aid the family is eligible for. A family that qualifies for $5,000 in aid at a $20,000 college, for instance, could use a PLUS loan to finance all or part of its $15,000 expected family contribution. Parents are eligible based on their creditworthiness, not financial need, however, and you need not have applied for aid to get a PLUS loan.
As with Stafford loans, there are two parallel PLUS-loan programs. Depending on the school your child attends, you may be borrowing from the federal government under the Federal Direct PLUS-loan program or from a private lender under the Family Federal Education Loan program. Either way, the interest rate is equal to the 91-day Treasury-bill rate plus 3.1 percentage points, but can be no more than 9%. The rate is adjusted every July 1. There's an up-front fee of up to 4% to cover origination and insurance.
Pick a lender
If your school participates in the Federal Direct Student Loan Program, you can get a PLUS loan from the federal government by filling out a Direct PLUS Loan Application and Promissory Note, available from the school's financial-aid office. If approved (you must have a clean credit history, or have a co-signer), the U.S. Department of Education will send the money directly to your school.
If the loan amount exceeds what you owe the school directly for tuition, room and board, and other fees, you'll get a check for the balance, to be used toward books, transportation and other out-of-pocket educational expenses.
If your school doesn't participate in the Federal Direct program, you can apply for your loan directly with a bank or other lender. As with Stafford loans, you can use your favorite local bank or credit union, or ask the financial-aid office or your state's higher education agency to direct you to lenders that make PLUS loans. In addition to checking your credit, most private lenders will assess your ability to repay, and can turn you down if you already have significant debt. Once you're approved for a loan, the money is usually disbursed directly to the school.
Repaying the loan
You begin repaying a PLUS loan 60 days after the lender pays the school, and you can choose to make full payments from the start or interest-only payments during the college years. The loan term depends on how much you borrow, but ten years is typical. You may be able to extend the loan term to as long as 30 years under the Extended Repayment Plan or Graduated Repayment Plan. But those options will cost you a bundle in additional interest.
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