5 PLUS Loan Benefits

The PLUS Loan is one of several federal student loan programs that provide money for college with reasonable terms. It offers prospective students, and their parents, several advantages.

PLUS Loans Defined

PLUS stands for Parent Loan for Undergraduate Students. It is a federally backed loan program, where parents apply to help dependent children pay the cost of undergraduate, graduate and qualifying trade school education.  The student must attend college full time.

Benefit 1:  PLUS Covers Uncovered Costs

Often, federal student loans don’t cover the full cost of college. Students applying for Stafford or Perkins loans find the approval process much easier, even if they have bad credit history or no credit history.  The PLUS Loan Program offers financing for any college-related cost that is not covered by other student loans. It is meant to bridge the gap that traditional student loan programs offer. 

Benefit 2: Parents’ Credit Is What Counts

If a student must seek private financing for costs not covered by federal student loans, having bad credit or no credit history may mean a loan is unattainable or will come with a high interest rate.

With the PLUS Loan Program, the parents apply on behalf of the student. It is their credit that matters. So, if parents have a good credit history, they can borrow at a reasonable interest rate and with favorable loan terms to complete the cost of their dependent child’s higher education.

Benefit 3: Fixed Interest Rate

Federally backed PLUS loans have a fixed interest rate. You can get a PLUS Loan directly from the government, or through authorized private sector lenders. Interest rates for PLUS loans are:

  • When borrowing directly from the government, the fixed interest rate is 7.9 percent with a 4 percent servicing fee for an effective annual rate of 8.85 percent.
  • When borrowing from a private lender, the interest rate is 8.5 percent with a 4 percent fee for a 9.5 effective annual rate. Private lenders often will waive the fee, but the fee exists because applying with them is an easier process.

Benefit 4: Deferred Repayment

Repayment terms on PLUS Loans are flexible. If the student is enrolled in a qualified school full time, the parent is not required to make payments on the PLUS Loan. Repayment of the PLUS Loan begin 60 days after full-time status of the student ends.

You should be aware that even though you are not making payments on the PLUS Loan while your student is in school, the loan continues to accrue interest, so the amount you owe at the end of the school period will be greater than the amount you initially borrowed.

You also can request forbearance from your lender if you get into financial trouble, and that will allow you to skip some payments. However, as with the automatically deferred payments while the student is in school, interest continues to accrue.

Benefit 5: Free Insurance

The PLUS Loan comes with free insurance that pays the loan off in the event of the parent’s or student’s death or permanent disability. In order to benefit from the insurance, an application must be filed and a death certificate must be provided.  The approval process is typically a quick one.

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