Your child is going to college or career school—that’s great! But you may have questions about how to pay for it. If your child hasn’t completed the Free Application for Federal Student Aid (FAFSA), get it done today. Completing and submitting the FAFSA is free and quick, and it gives your child access to the largest source of financial aid to pay for college or career school, including loans YOU (parents) can receive.

After applying for financial aid, your child may receive an aid offer from the school that includes grants, scholarships, school and state aid, and federal student loans. Those federal loans may include a Direct PLUS Loan that you (the parent) can get as a parent borrower. PLUS loans are an excellent option if you need money to pay your child’s education expenses, but you’ll want to make sure you understand the loan terms before you get one. Once you’ve taken out a PLUS loan, you must repay it, even if your child doesn’t complete their degree, can’t find a job related to their program of study, or if you or your child are unhappy with the education you paid for with your loan.

First, don’t assume the loan terms are the same as the federal student loans your child can receive. For a parent PLUS loan, you (parent!) are expected to begin making payments on the loan immediately after you’ve received the last disbursement—while your child is still in school. (There is an option to defer making payments and you can read more about that later in this post.) Also, a PLUS loan cannot be transferred to the student later. You, the parent, are responsible for repaying the loan. There’s more.

The additional key differences between parent PLUS loans and federal student loans for student borrowers include eligibility, interest rates, fees, the first payment due date, and repayment plans.

ELIGIBILITY

The eligibility requirements for Plus Loans and Federal Student Loans are not the same. To receive a PLUS loan, you must

• be the biological or adoptive parent (or, in some cases, the stepparent) of the student for whom you are borrowing, and your child must be a dependent undergraduate student who is enrolled at least half-time at a school that participates in the William D. Ford Federal Direct Loan (Direct Loan) Program;
• not have an adverse credit rating* (a credit check is required);
• not be in default on any federal education loans and not owe an overpayment on a federal education grant; and meet other general eligibility requirements for the federal student aid programs.

*The credit check is completed as part of the application process. If you are found to have an adverse credit rating, you may still qualify for a PLUS loan, but there are additional steps you need to take first. If you are unable to get a PLUS loan, your child may be eligible for up to $4,000 in additional unsubsidized loans. You can contact the school’s financial aid office for more information.

BORROWING LIMITS

The amount you can borrow in Direct PLUS Loans is generally more than the amount a student can borrow in federal student loans because you can use the loan to pay for education expenses not covered by other financial aid, which includes student loans. You can get a PLUS loan to make up the difference between your child’s cost of attendance and other aid referred to as “financial” or “unmet” need.

For example, if the cost of attendance (COA) at your child’s school is $25,000 for the school year and your child receives $15,000 in other aid, you can apply for a PLUS loan in the amount up of $10,000 or less.

If you do get a PLUS loan, it’s important to remember to borrow only what you need to for your child’s education expenses for the school year, and be sure to track the amount you borrow—loan balances can add up quickly. For instance, in the example above, if you were to borrow the maximum PLUS loan amount each year your child is enrolled, you could easily owe up to $40,000 in PLUS loans for one child (assuming your child is in school for four years). If you need help figuring out how much you’re eligible to borrow, contact your child’s school.

INTEREST RATES, FEES, PAYMENT DATES

The interest rate, the fees, and the first payment due date for a Direct PLUS Loan for parent borrowers are not the same as the federal student loans your child may receive. Here’s a quick summary:

• Interest rates
  The interest rate is determined annually for new loans that are made between July 1 of one year and June 30 of the following year. The current interest rate for Direct PLUS Loans first disbursed on or after July 1, 2016 and before July 1, 2017 is 6.31%. The rate is set by federal law.
• Fees
  You are charged a fee for each federal student loan you receive. The loan fee is a percentage of the principal amount of your loan. This fee is deducted before you receive any loan money, so the loan amount you actually receive will be slightly less than the amount you have to repay.
• First Payment Due Date
  Generally, you’re expected to make payments immediately on your PLUS loan once it has been fully disbursed (paid out). However, you may request a deferment to postpone repayment until your child graduates, leaves school, or drops below half-time enrollment.

You don’t have to make any loan payments while your loan is deferment, but it’s a good idea to make (at least) interest payments during the deferment period because interest will still accrue on your loan. If you don’t make the interest payments, the interest will be capitalized (added to your loan principal balance) at the end of the deferment period, increasing the amount of interest you accrue and the total amount you owe.

REPAYMENT PLANS

There are fewer loan repayment plan options available to parent PLUS loan borrowers than there are available to student borrowers. For example, parent borrowers are eligible for one income-based repayment plan, the Income-Contingent Repayment (ICR) Plan, which bases your payments on your income, but only if you consolidate your loans into a Direct Consolidation Loan first.

The following repayment plans are automatically available for Direct PLUS Loans made to parents:

• Standard — You’ll have fixed monthly payments for up to 10 years.
• Graduated — Your payments will start off lower and then gradually increase, usually every two years. You must repay the loan in 10 years.
• Extended — Allows you to repay your loans over an extended period of time, which is likely to lower the amount of your monthly payment. You can choose to make fixed or graduated payments. To be eligible for this plan, you must have more than $30,000 in Direct Loan debt, and you must not have already had an outstanding balance on a Direct Loan at the time you received a Direct Loan on or after Oct. 7, 1998.

If you already have a federal student loan and you are currently repaying it under one of these plans, you may be able to lower your payment by consolidating your PLUS loan. Consolidating your loans may extend the length of your repayment period and lower your monthly payment. Your new repayment period could range from 10 to 30 years depending on the amount of your consolidation loan, your other education loans, and the repayment plan you select. But, proceed with caution because increasing the length of your repayment period may also require you to make more payments and pay more in interest.

When you consolidate your loans, you will become eligible for the ICR Plan. If you select the ICR Plan, your payments will be the lesser of the following:

• 20 percent of discretionary income, or
• the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income.

The ICR Plan also allows you to have the remaining balance on your loans forgiven after 25 years.

HOW TO APPLY

In most cases, you’ll apply by going to studentloans.gov.  Check with your finanical aid office to make sure you are appplying correctly for that school.

1. Go to StudentLoans.gov
2. Log in using your FSA ID.
3. Select the type of PLUS loan you’re requesting: graduate student or parent.  Before making your selection, you should know the following:
   1. The award year the PLUS loan is for.
   2. Parents should have the student’s information, including their date of birth and Social Security number.
4. Fill out the “School & Loan Info” fields.
5. In the section that reads “Loan Amount Requested” you will have a few options.
   1. Selecting “I want to borrow the maximum amount for which I am eligible” will require you to select the loan period to which you’d like to apply the PLUS loan. This field may be different for each school.
   2. Selecting “I would like to specify a loan amount” will require you to type in the amount and the loan period start/end dates.  If your request exceeds the amount you’re eligible for, the school will contact you.
   3. If you select “I do not know the amount I want to borrow. I will contact the school” then you should contact the school after your application has been approved, or the school may contact you.
6. Information about the PLUS loan borrower (the borrower is the parent of the undergraduate dependent student or the graduate/professional student):
   1. Permanent address.
   2. Mailing address.
   3. Employer information if the borrower is employed.
7. Credit Check and Adverse Credit History – PLUS loans are the only type of federal student loan that require a credit check.    Even with adverse credit history, there are two ways you may still be able to qualify for a PLUS loan:
   1. Obtain an eligible endorser and complete PLUS credit counseling.
   2. Document extenuating circumstances relating to your credit history and complete PLUS credit counseling.
8. Sign a Master Promissory Note (MPN)

Note: If you’re a parent applicant with adverse credit history and you’re unable to get a PLUS loan, your child may be eligible for additional aid from the college.  Usually it’s more unsubsidized student loans but sometimes you get lucky and get additional grants. Check with the financial aid office at your child’s school for details.

After finding out that you’re eligible for the PLUS loan, you’ll be required to sign an MPN and agree to the terms of the loan. Make sure you read your MPN carefully because it’s a binding legal document that lists all the conditions of your loan.

Graduate students: If it’s your first time receiving a PLUS loan, you’ll be required to complete entrance counseling. Confirm with your school to make sure.Note: If you have previously received a PLUS loan you may not have to complete another MPN. Check with your school to confirm.

Note: If you have previously received a PLUS loan you may not have to complete another MPN. Check with your school to confirm.

HOW AND WHEN WILL I GET MY LOAN? 

The school will apply funds to the student’s school account to cover tuition, fees, room and board, and other school charges. If there is a remaining balance, the school will give it to the student to help pay for other education expenses. Parents who have been approved for a PLUS loan have the option of asking the school to pay the remaining funds directly to the student.

Each school has a different schedule for disbursing PLUS loans, so check with the school to find out when you should expect the funds.