PLUS Loans – The Ins and Outs of Being a Borrower

Last week we discussed the details of Stafford Loans, so this week we’ll go over the ins and outs of PLUS loans.

What Are They?

PLUS loans are one of many forms of federal financial aid that is available for both undergraduate and graduate students. They are made available to the parents of dependent undergraduate students and to graduate students with quality credit histories. These types of loans can be used to finance higher education costs that are not covered by private loans, scholarships and other aid as determined by a college or university’s annual cost of attendance.

As with any loan, there is a lender; in this case, the lender is the U.S. Department of Education. Through the Direct Loan Program, the department grants the PLUS loans to eligible graduate students and/or parents of undergraduates. The current fixed interest rate is 7.9% plus an upfront fee of 4% of the amount borrowed which raises the annual percentage rate of a typical, 10-year loan to 8.85%.

Am I Eligible?

If you are attending college as a dependent undergraduate working towards a degree, then a parent is eligible to apply for loans in their name on your behalf. Each year, you can borrow the full net, or out-of-pocket, cost of each child’s annual college education. To calculate the maximum PLUS eligibility, take the college’s annual cost of attendance and subtract out any other financial aid, such as grants, scholarships, and other federal student loans. Upon application, a credit check will be performed and adverse credit history will be taken into consideration. Individuals with questionable history may still be deemed eligible after the endorsement of cosigner.

What Do I Have to Do to Get Funds?

Once you have qualified for a PLUS loan there are a few steps you will be required to take in order to successfully qualify for the funding. Every borrower is required to sign a Master Promissory Note and go through Financial Aid Entrance Counseling before being able to access and available funds. Every school deals with disbursing funds differently, so making an appointment with the financial aid office will be beneficial. Traditionally funds are applied to student accounts within the first week of academic courses, after the balance for tuition and school fees have been paid a check will be distributed to the student in the amount remaining. This applies to any financial aid.

Financial Aid can be a tough piece of information to understand when making the transition from high school graduate to college freshman. The key to understanding is being proactive. Do not wait for the first week of school or dorm move in day to secure your aid and finalize your details. Make appointments early, complete all your outstanding tasks before departing for school and be ahead of the game.

Beware and be aware of interest rates and fees for any loan you consider. Your college funding plan should include the paying for college years, and also the additional 10-20 years to pay back all student and parent loans acquired during the college years. Want to know more about financial aid options available? Come to my next College Funding Workshop!

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