Last May Congress loosened the payback rules for PLUS loans in an effort to help more families juggle college costs and other expenses. The following is a brief review and update of PLUS loan facts.
The loan is the parent's responsibility. By contrast, the student is the borrower for a Stafford loan. The PLUS loan process is identical to the Stafford loan system. Your child's chosen school will tell you whether you can apply directly through the Federal Direct Loan program or if you will need to shop around for a lender that makes PLUS loans.
The interest rate is fixed. If the school participates in the federal program, the interest rate is fixed at 7.9%. You'll also be charged a one-time fee of as much as 4% of the loan amount. If you get a PLUS loan through a third-party lender, the maximum fixed rate is 8.5%.
There is no income eligibility limit or credit score check. Any parent, regardless of income can apply for a PLUS loan. And you can borrow up to the full cost of school after counting for any other aid or loans. If you are turned down for a PLUS loan (bankruptcy, foreclosure, 90 days behind on mortgage payments etc) your child will be eligible to borrow more from the Stafford loan program.
Repayment options are flexible. You can take advantage of the new law and delay payment. However, the interest owed on the loan continues to accrue and further increase the cost of college. Or you can opt to pay just the interest while you child is in school and then tackle the principal later on.
Plus loans are not discharged in bankruptcy. While other debts you owe, such as credit-card debt and mortgage debt, may be reduced or dismissed in a bankruptcy proceeding, a PLUS loan will remain your responsibility to pay, even after a bankruptcy. If you die the loan is forgiven.
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