Using a Federal Parent PLUS Loan to Guard Your Credit

The federal parent PLUS loan program provides a way for students to receive funds necessary to finance their college education. The PLUS loan program is comprised of the Federal Family Education (FFEL) Loan and the William D. Ford Federal Direct (Direct) Loan programs. These programs are guaranteed by the U.S. Department of Education.

Direct Loans

Direct loans are administered directly through the college or university’s financial aid office. The borrower complete a PLUS loan application and promissory note in the amount of funds needed to pay for school. The amount available through a Direct loan is based on the cost, less any aid that the student receives.

For example, if the total cost for a college is $10,000 and the student’s aid award is $5,000, the amount that can be applied for under the program is $5,000. The amount that the student actually receives is $4,800, which is a 4 percent reduction used to offset administrative costs by the federal government.

FFEL Loans

The FFEL loan is administered by a state agency in conjunction with the Department of Education and the higher education institution. The 4 percent fee that is deducted from the loan amount is sent to both the state agency and the Department of Education.

Using PLUS Loans to Protect Student Credit

As a student, using a PLUS loan allows you to protect your credit rating while having access to the funds necessary to pay for college. PLUS loans are borrowed by parents on behalf of the student and become their obligation. The PLUS loans are made to parents based on their credit rating and are not considered a debt obligation of the student. This allows students to gain access to the funding necessary to pay for school while also safeguarding their credit.

PLUS Loan Repayment

The PLUS loan has to be repaid beginning 60 days after the funds are disbursed from the Department of Education to the institution. There are allowances to defer the loan’s repayment to 6 months after the student graduates, leaves school or reduces their enrollment to less than 1/2 time. This may provide a way for a parent to make payments alongside the student upon graduation and while their employed but protect the student’s credit since the loan will still be considered the parent’s obligation.

PLUS loan provide access to more money than other federal student loan programs and the ability to leverage the parent’s credit standing in order to qualify. Since the loan is an obligation of the parent and not the student, not payment or loan default does not go as a mark against the student’s credit rating. This means that the PLUS loan is a good safeguard for parents to protect their student’s creditworthiness.


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