Plus Loans - It's Never Too Late To Subsidize Your Child's
By Vanessa McHooley, Sat Dec 10th
PLUS Loans – it's never too late to subsidize your child’seducation cost
Rising. Soaring. Skyrocketing. These are the words that seem tobegin every article about college tuition costs – and they arewords guaranteed to make every parent cringe. According to theCollege Board, costs for the 2004-2005 school year at four-yearprivate colleges are up 6%, while costs at four-year publiccolleges are up 10.5%. Scary? Yes. Impossible to handle? No! Thegood news is that there is more financial aid available thanever before. One of the most interesting financial aid optionsis the Parent for Undergraduate Students, or PLUS Loan.What is a PLUS Loan? PLUS Loans are federal loans taken out byparents to help pay their children’s college costs. PLUS Loansoffer several advantages: •Interest rates are adjusted eachyear, but are consistently kept low. For the 2004-2005 schoolyear, the interest rate is 4.17%. It is capped to never exceed9%. •Financial need is not a determining factor in receiving aPLUS Loan. •No collateral is required. •There is no penalty forearly repayment. •Loans can be consolidated. •If you areeligible, up to $2000 in interest may be tax-deductible underthe Hope Education Tax Credit. Who is eligible for a PLUS Loan?If you are a parent with dependent students attending college atleast part-time, you are eligible to receive a PLUS Loan. You doneed to have a good credit history. The following credit issueswill reduce your chances of getting a PLUS Loan: •Bankruptcies•Defaulted loans •Payments overdue by 90 days or more •Highdebt-to-income ratio If you are turned down for a PLUS Loanbecause
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of poor credit history, you can find someone to co-signthe with you and then apply again. How much can I borrowwith a PLUS Loan? You can borrow up to the total cost ofundergraduate education expenses, minus other financial aidalready received. Expenses can include tuition, room and board,supplies, lab expenses, and travel. How do I apply for a PLUSLoan? You can apply for a PLUS through the Federal FamilyEducation (FFEL) Program or through the William D. FordFederal Direct (Direct Loan) Program. FFEL loans come fromprivate lenders or servicers, such as your bank. PLUS Loanapplications are available from your school or your lender. Toapply for an FFEL PLUS Loan, you complete the application andthen submit it to your school. The school completes its portionof the application and sends it to the lender for approval.Direct loans come from the U.S. Department of Education’s DirectLoan Servicing Center. To apply for a Direct PLUS Loan, youcomplete a Direct PLUS application and promissory note andsubmit it to your school’s financial aid office. This form isavailable from your school’s Financial Aid Office. You can takeout one per enrollment period for each eligible student inyour family. PLUS Loans do require an application fee of up 4%of the principal of the loan. These fees are deducted from theloan principal, so no up-front money is required. The feeincludes a 3% origination fee charged by the federal governmentand a guarantee fee of up to 1% charged by the guarantee agency.However, most guarantors waive the guarantee fee. How are PLUSLoan funds disbursed? Funds are sent directly to the school’sfinancial aid office for scheduled payments over the course ofthe academic year. As with other federal loans, there areusually at least two disbursements, one for each school term.The funds are first applied to tuition, fees, room and board,and other school charges. If any money remains, you can receiveit as a check or you can put it in your student’s schoolaccount. This remaining money must be used for educationexpenses. When do I repay PLUS Loans? You start paying back PLUSLoans 60 days after the final disbursement of the school year.So, if the final disbursement is made in January, as is typical,repayment generally begins in late February or early March. PLUSLoans are the financial responsibility of the parents, not thestudent. If the student agrees to make payments on the PLUS Loanbut fails to make the payments on time, the parents are heldresponsible. What is the difference between PLUS Loans and otherstudent loans? The other student generally available tostudents is the Stafford Loan. The table below illustrates thesimilarities and differences between these two programs:PLUS Federally guaranteed Made to parents of dependentstudents Interest rate is low, but not as low as a Stafford(currently 4.17%) Repayment begins 60 days after finaldisbursement for the academic year borrowing can be up to100% of college education costs Stafford Federallyguaranteed Made to students themselves Interest rate is lowestavailable (currently 3.37% Repayment begins six months aftergraduation or leaving school borrowing is capped: • $2,625for first-year undergraduates • $3,500 for second-yearundergraduates • $5,500 for third- and fourth-yearundergraduates can be needs-based and requires a FAFSAInterest charges do not begin until repayment begins, aftergraduation This article is distributed by NextStudent. AtNextStudent, we believe that getting an education is the bestinvestment you can make, and we're dedicated to helping youpursue your education dreams by making college funding as easyas possible. We invite you to learn more about PLUS Loans athttp://www.NextStudent.com.
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