Many parents will opt to borrow a Federal Direct Parent PLUS loan to help cover the unmet cost of their child's education. Wondering how these are different from student loans? Read on!
What are Federal Direct Parent PLUS loans?
These loans (commonly referred to as PLUS loans or Parent PLUS loans) are fixed-interest, federally guaranteed loans available to credit-worthy parents of dependent students. These loans are not included on initial award letters for DU students; however, if your parent borrows one, it will be added to your financial aid package.
Who can borrow a Parent PLUS loan?
Biological or adoptive parents (or in some cases, a stepparent) of dependent students are eligible to apply for this loan. (Remember, you are considered to be a dependent student unless you are married, have children, are at least 24 years old, a graduate student, a veteran, a member of the armed forces, or an orphan, ward of the court or homeless.) Both you and your parent must meet the general eligibility requirements for federal student aid, and your parent must pass a credit check.
What are the terms of Parent PLUS loans?
|Federal Direct Parent PLUS Loan Terms:
||U.S. Department of Education
|Maximum Loan Amount:
||Up to your cost of attendance, minus all other financial aid.
||7.21% fixed for loans borrowed during the 2014-15 academic year. (The interest rate for 2015-16 will be announced in May.) Interest begins accruing as soon as the loan is disbursed to DU.
||A 4.292% origination fee is proportionately deducted at disbursement of each installment of the loan.
|Requirements to Receive Funds:
||Your parent must complete a Master Promissory Note online at www.StudentLoans.gov, and you must be enrolled at least half time (6 credits or more). Some borrowers may have to complete PLUS Counseling as well.
||None. However, your parent may request a deferment while you are enrolled and for 6 months after you graduate.
||Between 10 and 25 years, depending on total borrowing and repayment plan.
||Depends on chosen repayment plan, but at least $50 per month.
How does my parent apply for this loan?
First, you must have submitted the FAFSA. Then, your parent must request a Direct PLUS Loan and complete a Master Promissory Note online—using their own login information—at www.StudentLoans.gov. To be approved, your parent must pass a credit check.
Please Note: The 2015-2016 PLUS loan application became available on April 6th. However, we cannot begin certifying these loans until June. This means that while your parent can determine if he or she has been approved for a PLUS loan now by applying through www.StudentLoans.gov, the loan will not appear on your financial aid award until we certify it later in June.
What does the Department of Education look at during a credit check?
They're looking to see if the borrower has an adverse credit history. However, debt-to-income ratio, credit score, employment status or even lack of credit is not taken into account during this credit check. The credit check for a Parent PLUS loan is valid for 180 days.
What is considered adverse credit?
For purposes of qualifying for a Parent PLUS loan, a borrower is considered to have an adverse credit history if:
- he or she has one or more debts with a total combined outstanding balance greater than $2,085 that are 90 or more days delinquent as of the date of the credit report, or that have been placed in collection or charged off (written off) during the two years preceding the date of the credit report; or
- during the two years preceding the date of the credit report, he or she has been subject to a
- default determination,
- discharge of debts in bankruptcy,
- tax lien,
- wage garnishment, or
- write-off of a federal student aid debt.
What are the options if my parent is denied a Parent PLUS loan?
Parents who are denied because of adverse credit may:
- reapply with a credit-worthy endorser (cosigner),
- appeal the denial with the Department of Education if there are extenuating circumstances related to their credit history that can be documented, or
- contact our office, as the student may be eligible for an additional $4,000 Direct Unsubisidzed loan.
If your parent is initially denied, but is subsequently qualified to borrow a Parent PLUS loan by obtaining an endorser or documenting extenuating circumstances, he or she will be required to complete PLUS Counseling through www.StudentLoans.gov before the loan can be received.
Is this loan sent directly to my parent?
No. As with all other types of financial aid, a Parent PLUS loan will first be sent to the Bursar's Office at DU (who is responsible for the collection and billing of tuition-related charges) and will then be applied directly to your University bill. Usually, the total amount of the loan is disbursed evenly over three separate installments—one each for fall, winter and spring quarters.
If any additional funds remain after the bill has been paid in full, a check for that amount will be mailed to your parent. If your financial aid—without the PLUS loan—is greater than the bill, those excess funds will first be refunded to you (the student). Then, the PLUS loan funds will be sent to your parent (unless otherwise requested).
Can my parent ever transfer his or her Parent PLUS loan to me?
No. The parent is always responsible for paying back this loan.
What if my parent is unable to make loan payments in the future?
Under some circumstances, your parent may be able to request a deferment or forbearance on the loan, which means he or she can postpone payments for a period of time. Requests for a deferment or forbearance are made directly with the loan servicer.
Learn more about Federal Direct Parent PLUS loans through the Federal Student Aid website. If you still have questions, however, please contact us!
Up next week: Overview of Private Education Loans
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