What is a PLUS Loan?

You may have received a PLUS Loan on your financial aid offer. Or perhaps you heard a college's financial aid office mention it as a financing option. What is it? How does it work? And can everyone borrow one? We have the scoop.

Types

The PLUS Loan, officially called the Direct PLUS Loan, is a federal loan used to finance cost costs. There are two types: Parent PLUS Loans (for parents of dependent, undergraduate students) and Graduate PLUS Loans (loans for graduate students). In this post we'll focus on the Parent PLUS Loan.

The Borrower

The borrower on a Parent PLUS Loan is the biological or adoptive parent of an undergraduate, dependent student. A stepparent listed on the student's FAFSA may also serve as the borrower. The parent borrows the PLUS Loan alone. Though the loan funds are applied toward the student's education costs, the student is not a borrower on the loan and is not legally responsible for repayment.   

Financial Aid Offers

If you received a PLUS Loan listed on your financial aid offer, it's merely a suggestion from the college's financial aid office as one type of loan you could apply to borrow to help pay for any college costs not covered by financial aid. It does not mean that you have been approved for the loan nor that you have to borrow the loan. It's just a suggestion.

Qualifications

Parents must apply and be approved to borrow a PLUS Loan. Borrowers are approved if they have no adverse credit history, such as a bankruptcy or wage garnishment, have a child attending college at least part time in a degree-granting program, and meet other requirements, including classification as a U.S. citizen or permanent resident.

Interest Rate & Origination Fee

The PLUS Loan is administered by the U.S. Department of Education. It has an interest rate set every year based on the 10-year Treasury note auction each May, and once that rate is set, it stays tied to that loan for life. You can find the interest rate for the current academic year's PLUS Loan on the Federal Student Aid site here. Right now, it's roughly 9%. There's also an origination fee that's deducted from the loan amount. The amount of that fee changes every few years, and you can also find it listed on the Federal Student Aid website here. Right now, it's just over 4.2%.

Borrowing Limits

You can borrow a PLUS Loan up to the amount of the college's cost of attendance minus any financial aid received. For any college financing, MEFA recommends only borrowing what you need, remembering that every dollar borrowed will need to be repaid with interest.

Repayment

PLUS Loan borrowers can choose to start repayment while the student is in college, or defer payments until after the student leaves school.

Selecting a Loan

MEFA advises families looking for a college loan to carefully review and compare the features of each loan, including interest rate, fees, and repayment terms. Our Comparing College Loan Options webinar explains key loan terms and walks through what to consider when selecting a loan to pay for college costs. You can watch a recording of that webinar here. If we have an upcoming live webinar on the topic, you'll find it on our Webinars page here. If you have questions about loans or need assistance making a plan to finance college costs, reach out to our college planning team at (800) 449-MEFA (6332) or collegeplanning@mefa.org.