PLUS Loans
Direct PLUS loans are funded by the federal government and are available to both the parents of undergraduate students as well as graduate students or students seeking a professional degree.
There may be occasions when the financial aid an undergraduate student receives does not meet all of his school expenses, such as tuition, room and board, and books. In situations such as this, the qualifying parent of an undergraduate student may apply for further aid for their child. Direct PLUS loans may be taken out for undergraduates by the parents of dependent students attending college as long as the parent is the biological or adoptive parent of the student (or in some cases a stepparent).
Parents who decide to take out Direct PLUS loans to help meet the remaining financial need for their student child are responsible for the loan. The loan does not transfer under any situation to the student. The parent who takes out the loan must both qualify for it and is responsible to repay it on schedule. Credit history checks are conducted. As is the case with other types of federal school loans, if a parent has a poor credit history, someone else may “endorse” the loan. This means that a relative or friend with a good credit history promises to pay the loan if the parent through adverse circumstances cannot do so, or otherwise fails to repay.
Both parent and student cannot be in default over any previous federal loans, or owe any money due to overpayment of a federal education grant.
A parent may take out a loan that balances any deficit in the student’s cost of attendance that is not met by other financial aid. The loan is sent first the student’s school in at least two disbursements in order to pay for immediate expenses associated with attendance. Remaining funds may be arranged by the parent to be released to the student, put in the student’s account, or sent to the parent.
A PLUS loan’s repayment period for a parent starts at the time that the loan has been fully disbursed; however, parents also have the option of deferring payment while the student is still enrolled in school on at least a half time basis, plus an additional six months after the student ceases to be fully enrolled in school.
Graduate or professional degree students may also apply for a direct PLUS loan I order to meet additional education expenses not covered completely by the aid they have already received. The eligibility requirements for an independent graduate student applying for a PLUS loan are the same as for the parents of undergraduate students. The student must also be eligible for Direct Stafford Loans. For both parents and graduate students, there is a fixed interest rate of 7.9%.
In order to apply for a federal Direct PLUS loan, the parent or graduate student must complete an Application as well as a Master Promissory Note (MPN). Only one MPN needs to be completed, and can cover additional PLUS loans in ensuing years. The MPN explains all the terms and conditions of the loan, and also constitutes a legal document whereby the person who is acquiring the loan (whether parent or graduate student) promises to abide by its provisions and to repay the loan. Repaying the PLUS loan on time is immensely important, whether on a monthly basis or according to the repayment schedule in order to prevent going into default, which can result in not being able to take out further loans in the future.
A loan servicer can help to tailor repayment plans to the specific needs of borrowers who may be struggling to repay their PLUS loan. This might include changing repayment plans, obtaining a deferment during periods of hardship in order to temporarily stop making payments on a loan, or by obtaining a forbearance, which may allow the borrower to temporarily stop making payments on their PLUS loans, pay a lesser amount, or extend the time period in which to make payments.
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