PLUS Loans: Frequently Asked Questions

Updated 7/1/08

1. What is a PLUS loan?
2. How much can I borrow from the PLUS program?
3. How much do PLUS loans cost?
4. Who makes PLUS loans?
5. How do I get a PLUS loan?
6. Does everyone get approved for a PLUS?
7. What happens if I get rejected for bad credit?
8. What happens if I get rejected because the lender just doesn't want to make any PLUS loans?
9. How is the credit crunch affecting PLUS loans?
10. Are PLUS loan payments tax deductible?
11. When do I have to start repaying my PLUS loan?
12. What happens if I lose my job or get into other financial trouble?
13. What are the advantages of a PLUS loan?
14. What are the downsides of PLUS loans?

What is a PLUS loan?
A federally guaranteed parent loan that can be used only to pay higher education costs.
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How much can I borrow from the PLUS program?
Each year, you can borrow the full net or out-of-pocket cost of each child's annual college costs. To calculate the maximum PLUS eligibility, take the college's annual cost of attendance and subtract out any other financial aid, such as grants, scholarships, and other federal student loans.
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How much do PLUS loans cost?
Parents of students who attend a school that arranges federal loans directly with the federal government can borrow at 7.9 percent plus a fee of 4 percent, which raises the annual percentage rate of a typical $10,000, 10-year loan to 8.85 percent. Students at schools that allow their students to shop for loans pay a maximum of 8.5 percent a year and a 4 percent fee for a total APR of 9.5 percent. But some private lenders are offering discounts. For a Web tool that helps you shop for better PLUS deals, click here. Generally, it pays to choose the lender offering the most upfront discounts, such as fee waivers. The Project on Student Debt has a chart on how to figure out the best deal. Taxpayers with low and middle incomes can deduct their education loan interest payments, further reducing the cost of the loan.
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Who makes PLUS loans?
Depending on what your college permits, parents can borrow a PLUS loan directly from the federal government or from private banks or nonprofit lenders. For a Web shopping tool to search for better PLUS deals, check out the Education Finance Council.
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How do I get a PLUS loan? Updated 7/1/08
The first step is to call the financial aid office at your student's college. Some schools require parents to borrow directly from the federal government. Others let parents shop among banks and nonprofit lenders to see if they can find one offering discounts. If your school allows you to shop, they may provide you with a "preferred lenders list." While those lenders may have good deals, it also pays to search a little on your own. Some (but not all) states' nonprofit lenders are offering discounts. You can search at the Education Finance Council, or you can try U.S. News's web shopping tool, Simple Tuition, which includes many of the lowest cost private and nonprofit lenders. Once you've chosen a lender, you'll have to fill out an application. It is not technically necessary for the parent to fill out a FAFSA, though many schools urge it so that students can see if they qualify for other aid.
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Does everyone get approved for a PLUS?
No. Lenders do a credit check. Parents with significant financial trouble (known as "adverse" credit), such as a recent bankruptcy or bills more than 90 days overdue, will be rejected. They can reapply if they can find a cosigner with good credit.
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What happens if I get rejected for bad credit?
Children of parents who have been rejected for a PLUS loan are allowed to borrow more from the Stafford program.
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What happens if I get rejected because the lender just doesn't want to make any PLUS loans?
Once you've collected two rejection letters, you can call your student's financial aid office and ask to participate in the "lender of last resort" program. The college is supposed to put you in touch with someone who will make the loan. One way to avoid this problem is to avoid the lenders who've already announced they are suspending or ending their education loan programs. Check FinAid or the National Association of Student Financial Aid Administrators for lists of these programs.
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How is the credit crunch affecting PLUS loans?
Many counselors are advising parents to line up a lender, apply for their parent loan, and lock in terms as soon as possible. They recommend you get your application in at least a month before classes start. The Project on Student Debt has a Q&A with more tips (.pdf).
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Are PLUS loan payments tax deductible?
It depends on your income. Generally not for two-parent families with incomes above $135,000.
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When do I have to start repaying my PLUS loan?
For all PLUS loans made after July 1, 2008, borrowers can defer payments until after the student has left college. But beware, the interest is quietly building up during that time. Parents who borrow $10,000 to pay for a student’s freshman year, will owe about $14,000 if they wait four years to start repaying.
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What happens if I lose my job or get into other financial trouble?
You can call your lender and ask to apply for forbearance, which allows you to skip some payments. But beware: The interest keeps building up, so you'll owe a lot more when you start repaying again. The National Consumer Law Center has lots of good advice.
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What are the advantages of a PLUS loan?
PLUS loans have a fixed interest rate, so the size of your payment won't rise if interest rates rise. They also offer free insurance, so the debt will be canceled if the parent or the student dies or becomes disabled. PLUS borrowers can also get their payments deferred if they get into financial trouble.
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What are the downsides of PLUS loans?
Unlike credit card debt and mortgages, which can be canceled if you file for bankruptcy, education loans of all types must be paid. Most bankruptcy courts will not cancel them unless your situation is extremely dire.
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