Considering a PLUS Loan

PLUS stands for Parent Loan for Undergraduate Students. As long as you are a dependent student and are attending college on at least a part-time basis, then your parents can take out a PLUS loan and borrow federally guaranteed, low-interest loans to help pay for your education.

PLUS loans require no collateral, and the interest may be tax deductible. PLUS loans are also not need-based, which means that your parents can borrow up to the total cost of undergraduate education expenses (including tuition, room and board, supplies, lab expenses, and travel) minus other financial aid that you've already been awarded. For example, if the total cost of one year at your university is $18,742 and you have received a $7,000 scholarship and $2,500 in work-study money, then your parents qualify for a PLUS loan in the amount of $9,242.

Your parents must have a good credit history to be eligibility for a PLUS Loan. (Bad credit history is usually defined as being more than 90 days late on any debt or having any of the following within the past five years: a default on a loan, bankruptcy, foreclosure on a house, repossession of a car, or any tax lien or wage garnishment.

Unlike federal student loans, payment is not deferred until after graduation; instead, your parent's first loan payment will be due about 60 days after the loan is disbursed. Also unlike federal student loans, PLUS Loans usually have an application fee.

Even though your parents are the ones taking out a PLUS loan, your college or university might still require them to submit some financial aid paperwork or applications. Always check with your school's financial aid office before seeking any type of loan or aid to make sure you understand the details.

How is PLUS loan money dispersed?

Depending on the type of PLUS loan your parents take out, either the U.S. Department of Education or your parents' lender will send the loan funds to your school. (Some schools require parents to endorse a disbursement check and send it back to them.) The funds will first be applied to your tuition, fees, room and board, and other school charges. If any loan funds remain, your parents will receive the amount as a check unless they authorize the remaining money to be released to you or to be put into a school account. Any remaining loan funds must be used for your education expenses.