Federal Parent Loan: A Closer Look

Take a closer look at the federal parent loan program and you find an often-overlooked option for financing undergraduate student education. The PLUS loan program, which stands for Parent Loan for Undergraduate Students, allows the parent to borrow funds for dependent students who are enrolled at least half time in an accepted undergraduate program.

How Federal Parent Loans Work

Much as with student loans, the federal government backs loans made through local or state institutions to cover all or part of a student's expenses. Parents of qualifying students still must have an acceptable credit history to receive loan approval, although there are options here as well. If parents don't qualify, a friend or relative can also apply for a loan on the student's behalf if the friend or relative can pass the credit check and endorses the loan. Federal parent loans originate from an unsubsidized government program, which means that unlike traditional student loans, the interest rates are closer to market rates.

Two Types of Federal Parent Loans

  • FFEL Loans are administered by the Federal Family Education Loan Program

  • Direct Loans are administered by the William D. Ford Federal Direct Loan Program. The parents of an eligible student cannot get a loan from both agencies simultaneously. They also must have an acceptable credit history.

Applying for a Federal Parent Loan

  • The application for the Direct PLUS Loan program and a required promissory note are in a single form available at the school financial aid office.

  • To apply for the FFEL PLUS Loan program, parents first obtain a PLUS Loan application from the school, from a qualified school lender or from the state guaranty agency. The completed application is submitted to the school which also must complete a portion. The application is then evaluated by the proposed lender.

Receiving Federal Parent Loan Funds

  • Each year, a PLUS Loan can be requested for the cost of the eligible student's enrollment less other financial aid received.

  • Funds are disbursed through the Department of Education for the Direct PLUS program and through a local lender for the FFEL PLUS program.

  • Typically, the funds come in two installments, and parents may be required to have the loan proceeds sent directly to the school.

Federal Parent Loan Rates and Fees

PLUS loan interest rates are set on July 1 each year and on for 2008 was set at 5.01%. A fee of up to 4% of the total value of the loan is deducted from the disbursed funds. These fees are to reduce the cost to the government for processing the loans. If loan payments are late, collection or late fees may be applied.

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