|By David Pilley on July 19, 2010
If you’re planning to go to college, money is an issue you should not worry about. College isn’t just for rich kids. There are many ways to pay for college that don’t involve immediate payment, including scholarships, grants, and loans. One option is a PLUS loan.
“PLUS” stands for “Parental Loans for Undergraduate Students.” If you are at least a half-time student enrolled in a college or university and you are a dependent, your parents can apply for a PLUS loan. (A “dependent” is someone under 24 years old; has no dependents; and is not married, a veteran, a graduate or professional degree student, or a ward of the court. As of 2008, however, graduate and professional degree students are also eligible for a loan.) As with most loans, a good credit history makes it more likely that you will be approved for a PLUS loan. If your parents have a spotty credit history, they can still receive the loan if a relative with good credit agrees to endorse the loan.
Of course, you must provide proof that you need financial aid. If your parents make less than $20,000 a year, you demonstrate financial need and will be more likely to receive aid. If your parents make over $100,000, chances are you won’t get much aid.
The amount you can receive from a PLUS loan is your cost of attendance minus the total amount of other financial aid you are receiving. If it costs $10,000 a year to go to school and you are receiving $6,000 in other financial aid (such as the Pell Grant, Stafford Loan, or a private scholarship), then your parents can ask for up to $4,000 in the PLUS loan.
As with every loan, PLUS loans have an interest rate. The PLUS loan is fixed at a 7.9% rate. However, if a parent qualifies under the Service Members Civil Relief Act (meaning he/she is serving in the Armed Forces), the rate can be lowered to 6% while he/she is serving (must be active duty or mobilized guard).
And as with every loan again, the PLUS loan must be paid back. There are different repayment programs among different universities, but borrowers typically have between 10 and 25 years to pay back the loan.
The final thing to remember about the PLUS loan is that it goes to your parents, not you. Your school uses the loan to pay enrollment charges, and if anything is left over, the remainder is mailed to your parents. Your parents apply for the loan, sign all the paperwork, and are responsible for paying the bill. Just a word of advice: be good to your parents. Even though Mom and Dad have the tab, it would be a nice gesture for you, the student and the child, to help with paying off the debt.