Although the bulk of financial aid is awarded directly to students, one major federal financial aid program is available to assist parents with their share of post-secondary (beyond the high school level) educational expenses. This program is known as the Parent PLUS Loan.
PLUS Loans are available to any creditworthy parent of a student matriculated at least half-time in an undergraduate degree or certificate program offered by an accredited post-secondary educational institution. Graduate and professional students can borrow under the PLUS Loan program too (these loans are called GradPLUS Loans). PLUS Loans are not limited for use only at colleges; they may also be used for post-secondary vocational or trade program expenses. These loans may be granted by a private lender or directly by the federal government. Completed loan applications are forwarded by the parent to the financial aid administrator of the student’s school for certification and further processing.
The limit that a parent may borrow for any single academic year is the cost of education (which may include tuition, fees, room and board, books, and supplies), minus any other financial aid received. Thus, if the cost of education were $30,000 and the student received aid totaling $10,000, a parent would be eligible to take out a $20,000 PLUS Loan.
The interest rate is fixed for the life of the loan and the rate on new loans is set each June. The current interest rate on PLUS Loans for the 2013/14 academic year (July 1, 2013 through June 30, 2014) is 6.4%. Interest begins accruing upon the first loan disbursement. Disbursements are made directly to the school, usually in two equal installments. Parents now have the choice of making payments while the student is in school or deferring payments until the student graduates.
In most cases, parents will need to file the federal government’s financial aid application, the FAFSA, to obtain a PLUS Loan. The reason is that because a PLUS Loan is a type of federal loan, it must be “certified” (approved) by the college’s financial aid office. If the college requires students to fill out the FAFSA, it will need a FAFSA on file to certify a PLUS Loan. Check with your school’s financial aid office on their policy.
If you have questions, contact the Experts at Henssler Financial: