What are PLUS Loans?

PLUS loans are an option for your family

Pixabay user PeteLinforth

Despite what they say, many parents secretly dread the day their child walks out the door to head away to college. This is an emotionally trying time for both parents and their burgeoning students, even for the most experienced at sending kids to school. As the elder child in my family, I had the burden of being the pioneer of my family’s “departing-for-college” experience, which was notably easier on my parents when it was time to send my younger brother off to school. It is much easier to do something if you already know what to expect, what support you will receive, and how to help your student. The answers to these questions are one of the many benefits provided by the PLUS loan program and PLUS loans.

What is the PLUS loan program?

The program’s name, originally an acronym for “Parent Loan for Undergraduate Students,” provides a relatively apt description of its benefits. A PLUS loan is similar to a Perkins or Stafford loan with a few exceptions, one of which is its focus on a commitment by parents rather than students. The loans are doled out by the Department of Education and available to the same students who can receive Perkins or Stafford loans, meaning US citizens with a good credit score planning to attend school at least half-time. “Half-time” is a bit of an odd phrase; it seems exact but has broad borderlines. Each college defines their enrollment tiers in different ways based on credits, but generally speaking, students must be enrolled in around six credit hours to be considered at least a half-time student.

How do PLUS loans compare to other loans?

The PLUS program differs from Stafford and Perkins loans in a few key ways, most of which concern the amount of money borrowed and the ways it is used. While Stafford and Perkins loans have a hard cap, meaning a limit on the money that can be borrowed, the PLUS loan does not. In addition, the program covers living expenses (i.e. room and board) as well as tuition and fees. As a trade-off, PLUS loans have higher interest than other federal loans, a fixed rate of 7.9%. Unlike a subsidized Stafford loan, wherein the student is not asked to pay interest while under the program, the interest of a PLUS loan begins to accrue right after the first payment. Finally, a family’s entire credit history is taken into account when being considered for a loan, opposed to the past loan debt credit history examined for Stafford or Perkins loans.

PLUS loans have changed to be simpler

In 2008, the PLUS program opened new paths for repayment for their customers. Now, families who joined under the promise of a simpler, more streamlined payment process have two options as opposed to one cluttered path. The repayment process can either begin six months following a student’s final class or sixty days after the loan process has been completed. The latter option is markedly different from that of a Perkins or Stafford loan, because it generally means that parents will begin paying back the loan while their student is still attending college. The first option is more traditional, the same route Perkins and Stafford loan students go, receiving a bill following their leaving school.

Depending on your family’s individual financial situation, a PLUS loan may be the best route to take due to its all-encompassing funds package and different options for repayment. However, on the other hand, the fixed interest rate and credit background check may not be the best option for certain families. The PLUS loan asks parents to commit to them, and in turn, the program commits their funds to the most important person in these parents’ lives: their child.

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