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Financial Aid 101: The Federal Direct Parent PLUS Loan

 

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 on the FAFSA unless you are married, have children you support, 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 be U.S. citizens or eligible noncitizens, and the parent must pass a credit check.

What are the terms of Parent PLUS loans?
Here's a quick rundown:

Federal Direct Parent PLUS Loan Terms:
Lender: U.S. Department of Education
Maximum Loan Amount: Up to your cost of attendance, minus all other financial aid.
Interest Rate: 6.41% fixed. Interest begins accruing as soon as the loan is disbursed to DU.
Origination Fee: 4.204% of the loan
Requirements to Receive Funds: Your parent must complete a Master Promissory Note online at www.StudentLoans.gov, and you be enrolled at least half time (6 credits or more).
Repayment Terms:
Grace Period: None. However, your parent may request a deferment while you are enrolled and for 6 months after you graduate.
Repayment Length:
Between 10 and 25 years, depending on total borrowing and repayment plan.
Payment Due:
Monthly
Payment Amount:
Depends on chosen repayment plan

Let's review these terms in more detail:

  • Lender: The lender for the Federal Direct Parent PLUS loan is the U.S. Department of Education. However, once this loan has completely disbursed (or paid out) to DU, your parent will be assigned a loan servicer who will handle billing and other services related to the loan.
  • Maximum Loan Amount: The maximum amount your parent can borrow is your cost of attendance minus all your other financial aid. (Your cost of attendance is listed on your award letter.)
  • Interest Rate: Currently, the interest rate is fixed at 6.41%. This rate is set by Congress, and will likely change for the 2014-2015 academic year. (Interest rates are typically announced in May.)
  • Origination Fee: A 4.204% origination fee—charged by the U.S. Department of Education—is deducted from each installment of the loan at disbursement. This means the amount sent to DU will be slightly lower than the total amount your parent has borrowed. The fee on a $10,000 loan, for example, is $420.40.
  • Requirements to Receive Funds: If approved, your parent must complete a Master Promissory Note online at www.StudentLoans.gov and you must be enrolled at least half time before any funds can be sent to DU on your behalf.
  • Grace Period: Unlike other federal loans, repayment begins once the loan is fully disbursed (paid out). However, your parent can contact the loan servicer to request that repayment be deferred while you are enrolled and for 6 months after you graduate. (Interest continues to accrue during this time.)
  • Repayment Length: There are multiple repayment plans available, which have repayment terms that range from 10 years to 25 years. The amount of time your parent will have to pay back a PLUS loan depends on the chosen repayment plan.
  • Payment Due: Payments are made to the servicer every month once repayment begins.
  • Payment Amount: Your parent's monthly payments will depend on the chosen repayment plan and the total amount borrowed. Learn more about each repayment plan through the Federal Student Aid website.

How does my parent apply for this loan?
First, you (the student) 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: We will not begin certifying these loans for the 2014-15 academic year until June. Therefore, your parent should wait to apply for a PLUS loan until that time to prevent the need for multiple credit checks.

What does the Department of Education look at during a credit check?
They're looking to see if your parent has adverse credit history. However, your parent's debt-to-income ratio, credit score, employment status or even lack of credit is not taken into account during this credit check.

What is considered adverse credit?
Adverse credit is defined as being 90 days or more delinquent on any debt in the past five years. This includes having unpaid accounts in collections, or having a credit report that shows default, discharge, foreclosure, bankruptcy, repossession, tax lien, wage garnishment, or a write off of federal student loan debt.

What if my parent is denied a Parent PLUS loan?
Your parent may still borrow a PLUS loan by obtaining a credit-worthy endorser (cosigner). Or, if you are a dependent student, you may be eligible for an additional Unsubsidized Direct loan up to $4,000.  

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 your bill, those excess funds will first be refunded to you. 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 I my parent is unable to make loan payments?
Under some circumstances, your parent may be able to request a deferment or forbearance on their 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: Private Education Loans

Want to review past Financial Aid 101 emails? Check out the archives!

Financial Aid | University Hall 255 | 2197 S. University Blvd. | Denver, CO 80208
303.871.4020 | FAX: 303.871.2341 | finaid@du.edu | www.du.edu/financialaid
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