PLUS Loans

Direct PLUS loans are meant to help your parents cover the costs of your undergraduate school expenses. Your parents do not have to prove financial need, but the loans are unsubsidized - this means that the interest accumulates while you are in school.

They are loans your parents can take out to pay for your education expenses - you must be their financial dependent and enrolled at least half time. Also, your parents must pass a credit check. PLUS loans come directly from the U.S. Department of Education under the Direct Loan Program.

How much can my parents borrow?

The yearly limit on a PLUS Loan is equal to your cost of attending school, minus any other financial aid you receive. For example, if your cost of attendance is $6,000 and you receive $4,000 in other financial aid, your parents could borrow up to $2,000.

How do my parents apply?

For a Direct PLUS Loan, your parents must complete a Direct PLUS Loan application and a promissory note. A promissory note is a legal document listing the terms and conditions of the loan. The application and note are in a single form you can get from your school's financial aid office.

Although it's not a requirement, parents are encouraged to have their dependent children file a Free Application for Federal Student Aid (FAFSA). This will ensure that you can receive the maximum student aid you're eligible for.

Are there any borrowing requirements my parents have to meet?

Yes, generally they have to pass a credit check. This is a review of their credit history to determine if they are likely to be able to pay back the loan.

If they don't pass, they might still be able to receive a loan with the help of a relative or friend who can pass the credit check. This person must agree to endorse the loan and promise to repay it if your parents don't. If your parents don't qualify for a loan because they didn't pass the credit check, they may qualify if they can demonstrate that extenuating (difficult and unusual) circumstances exist.

For your parents to borrow money for you, you must meet the general eligibility requirements for federal student aid. Your parents must also meet some of these general requirements. For example, they must meet citizenship requirements or be eligible non-citizens. They may not be in default or owe a refund to any FSA program.

Do they need to find a lender?

No. Their lender will be the U.S. Department of Education.

Can the school refuse the loan application?

Your school can refuse to certify your parents' loan application, or they can approve a loan for a smaller amount than your parents are eligible for. The school must document the reason for its decision and explain the reason to your parents in writing. The school's decision is final and cannot be appealed with the U.S. Department of Education.

Do my parents get the money or do I?

The U.S. Department of Education will send the loan funds to your school.

The school will use the loan money first to pay your tuition, fees, room and board, and any other schools charges. If any loan funds remain, your school will give them to you for other education expenses.

In most cases, the loan will be disbursed in at least two installments. (Disbursement is the release of loan funds to the school for delivery to the borrower.)

In other words, your school will receive at least two payments. No single payment will be more than half the loan amount.

What's the interest rate on PLUS Loans?

The interest rate is 6.41 percent for Direct PLUS Loans first dispursed between July 1, 2013 and before July 1, 2014. For Direct PLUS Loans first dispursed between July 1, 2014 and before July 1, 2015, the interest rate is 7.21 percent.

Other than interest, is there a charge to get a PLUS Loan?

For Direct PLUS Loans first disbursed on or after December 1, 2013 and before October 1, 2014, the loan fee is 4.288 percent. For Direct PLUS Loans first disbursed on or after October 1, 2014 and before October 1, 2015, the loan fee is 4.292 percent.

How do my parents pay back the loan?

When your parents first receive the loan, there will be a loan servicer listed on the disclosure statement. They will make their payments through this loan servicer.

The Federal Student Aid website has a Repayment Estimator which can help you and your parents make plans for repayment: https://studentaid.ed.gov/repay-loans/understand/plans.

Are there any tax credits available for paying back these loans?

Yes, there are tax incentives for certain higher education expenses. For certain borrowers, student loan interest can be deducted. This benefit applies to federal and non-federal loans taken out to pay for post-secondary education costs. The maximum deduction is $2,500 a year.

You can find out more about these credits and other tax benefits through the Internal Revenue Service (IRS) :

IRS Publication 970 -- Tax Benefits for Education