Unlike the annual borrowing limits imposed on students in the both the FFEL and Direct Stafford student loan programs, Parents of dependent students can borrow any amount up to the cost of attendance minus any other aid the student receives. For example, if a student's cost of attendance is $12,000 and the student has a student loan for $3,500, a parent or stepparent of this student could be eligible to borrow up to $8,500 in Parent Loan. The common acronym for the federal parent loan is PLUS, or Parent Loan for Undergraduate Students.
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Unlike the student loan program, PLUS loans do require a credit check and therefore are not guaranteed in the same sense as the Stafford student loan. Those eligible to borrow include either natural, adoptive or stepparent of the dependent student. The parent who provides information on the FAFSA application is not the only parent who can access a PLUS loan. Grandparents, parents' domestic partners or unmarried partners and foster parents are currently ineligible to borrow. However, if a parent is denied on the credit check he or she can pursue a co-borrower, or endorser, from any willing party (Alternately, the student can receive additional unsubsidized loan at the independent level upon a PLUS denial). One interesting and often used option of the PLUS loan is the program's ability to allow two or more PLUS loans to be originated for one student. The benefit of this flexibility is especially helpful for divorced parents who choose to share, either equally or otherwise, in their child's educational costs. In short, each parent can borrow a PLUS loan during the same loan period for their child's college costs. If your institution does not advise you of this possibility, contact them and ask how to go about making it happen.
Current terms of a PLUS loan make it an economical option for many families who cannot meet the full cost of attendance or expected family contribution. The interest rate for the PLUS is variable, changing every July 1. The interest is based on the Bond-equivalent rate for 91-day T-bills plus 3.1% with a cap of 9 percent. The interest rate for new PLUS borrowers for loans disbursed from July 1, 2007 to June 30, 2008 is 7.9 percent. The PLUS is a non-need based aid program and should be accessed after all need-based programs are exhausted for the student.
Funds from PLUS loans are disbursed, after loan fees and insurance fees have been deducted, in the same manner as the Stafford student loans with one exception. PLUS refunds, the amount of loan borrowed in excess of the student's account balance at the time of disbursement, will be refunded to the parent borrower instead of the student. Any remaining funds disbursed to the parent are intended for the sole purpose of supporting the dependent student while in school. Some schools may have a by-request option allowing the funds to go directly to the student with parent borrower permission.
PLUS loans have no grace period. Repayment on the PLUS loan begins 60 days after the last disbursement of the academic year. It is likely that a parent who relies on PLUS loans to fund their child's education will have more than one parent loan at more than one interest rate after all is said and done. Therefore repayment options and consolidation options will be of particular import to those parents. Any parent owing on more than one PLUS loan is eligible for a consolidation. Three repayment options are available for PLUS loan borrowers. As is the case with Stafford loan borrowers, parent borrowers can choose from the standard ten-year repayment plan, the graduated plan or the extended plan. The only plan not available for parents is the income contingent option. When it comes to college student loans, the PLUS parent loan should not be overlooked.
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