Parent Plus Loans: Frequently Asked Questions

Updated 8/13/2010

1. What is a parent 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 a PLUS?
   
8. How is the credit crunch affecting PLUS loans?
9. Are PLUS loan payments tax deductible?
10. When do I have to start repaying my PLUS loan?
11. What happens if I lose my job or get into other financial trouble?
12. What are the advantages of a PLUS loan?
13. What are the downsides of PLUS loans?

What is a PLUS loan?
A federally guaranteed parent loan that can be used to cover your child's 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 education. 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?
The federal government charges 7.9 percent  in annual interest plus an upfront fee of 4 percent of the amount borrowed, which raises the Annual Percentage Rate of a typical $10,000, 10-year loan to 8.85 percent. 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?
As of July 1, 2010, only the federal government makes PLUS loans. But applications are usually processed through your child's college.
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How do I get a PLUS loan?
The first step is to call the financial aid office at your student's college.  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. The government rejects parents who've had  significant financial trouble (known as "adverse" credit), such as a recent bankruptcy or bills more than 90 days overdue. Parents can reapply if they can find a cosigner with good credit.
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What happens if I get rejected for a PLUS?
Children of parents who have been rejected for a PLUS loan are allowed to borrow more from the Stafford program.
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Are PLUS loan payments tax deductible?
It depends on your income. Generally not for two-parent families with incomes above $145,000.
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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 the Department of Education 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 your payments 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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