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ARENT LOANS
Parents of dependent students can take out loans to supplement their children’s aid packages. The federal Parent Loan for Undergraduate Students (PLUS), available through the Direct Loan Program, lets parents borrow money to cover any costs not already covered by the student’s financial aid package, up to the full cost of attendance. There is no cumulative limit.
Parent PLUS loans are the financial responsibility of the parents, not the student. If the student agrees to make payments on the PLUS loan, but fails to make the payments on time, the parents will be held responsible. These days the PLUS loan is referred to as either the Parent PLUS or Grad PLUS loan.
Interest Rates and Fees
PLUS loans through the Direct Loan program have a fixed interest rate of 6.41%. The interest on the PLUS loan is not subsidized while the student is in school, unlike the subsidized Stafford and Perkins loans. The PLUS loan charges loan fees of 4%, deducted from each disbursement check.
Repayment
Repayment begins 60 days after the funds are fully disbursed, and the repayment term is up to 10 years. Graduate students may defer repayment on Grad PLUS loans while they are in school. However, there is no six-month grace period as there is with the Stafford Loan program.
Parents have the option of deferring repayment on Parent PLUS loans while the undergraduate student on whose behalf they borrowed the PLUS loan is in-school and for a six-month grace period after the student graduates or drops below full-time enrollment. Note that since the interest on the PLUS loan is not subsidized, it continues to accrue while deferred or in forbearance and is capitalized when the loan enters repayment.
Consolidating PLUS Loans
PLUS loans can be consolidated just like Stafford and Perkins Loans, although a parent’s PLUS loan cannot be consolidated with the student’s Stafford and Perkins Loans, since the borrowers are different. But parents who have their own Stafford loans can consolidate them together with any PLUS loans they have borrowed to pay for their children’s education.
Consolidating PLUS loans provides access to alternate repayment terms, such as extended repayment, graduated repayment, and income contingent repayment.
Consolidation also reduces the interest rate by 0.25%. It is best to consolidate PLUS loans separately from Stafford and Perkins Loans to maximize the benefit of this interest rate reduction. However, one should also consider the impact of consolidation on available education loan discounts.