Federal Parent PLUS Loan

Parents of dependent students can take out loans to supplement their children's aid packages. The federal Parent Loan for Undergraduate Students (PLUS) lets parents borrow money to cover any costs not already covered by other financial aid, up to the full cost of attendance. There is no cumulative limit.

The PLUS loan is not based on need. Therefore, interest payments are not subsidized by the federal government and interest does begin to accrue at the time the loan is disbursed. As of July 1, 2006, the interest rate is fixed at 8.5%. Repayment begins within 60 days after the final loan disbursement is made for the period of enrollment for which the loan was borrowed, and there is no grace period for repayment. The standard repayment term is ten years.

A three percent origination fee will be deducted from the loan amount. An origination fee is a fee that is paid to the federal government to help offset the cost of maintaining the program.

Eligibility for the PLUS loan depends on a modest credit check that determines whether the parent has an adverse credit history. An adverse credit history is defined as being more than 90 days late on any debt or having any Title IV debt (including a debt due to grant overpayment) within the past five years subjected to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off.

If a student's parents are denied a PLUS loan, the student becomes eligible for increased Stafford Loan limits. Only one parent needs to apply for and be denied a PLUS loan. However, if one parent is denied a PLUS loan and the other is approved for a PLUS loan, the student is not eligible for increased Stafford Loan limits.