PLUS Student Loan
A full-time undergraduate student may receive assistance in paying the expenses of a college education through the parent PLUS Loan which is a loan obtained in the name of his/her parent or parents. First, the parents will obtain and complete the PLUS Loan request, generally available in the institution’s office of financial aid.
This kind of education assistance is accepted by the FEEL Program as well as by the Direct Stafford Program. Since this is a loan, the parents are required to have an approved credit history. If accepted, they may then borrow funds through the PLUS Loan for the benefit of their dependent child if the child is taking a minimum of half time hours in a qualified course of study.
In order for the parents to qualify to obtain this loan, their credit history must be acceptable. The parents’ application will not be declined if they do not have a credit record, only if their history is derogatory. Should your parents fail the credit examination, a PLUS Loan may yet be available if another relative or a friend will submit an application, pass the credit history check, and guarantee the repayment of the loan.
A negative credit report is defined as having a debt repayment which has been greater than 90 days in arrears, having a Title IV obligation during the most recent five years, having a discharge of debt in bankruptcy, or by having any of the following: foreclosure, repossession, tax lien, or wage garnishment. Since the PLUS Loan is made in the parents’ name, it is their credit report which is examined.
In general, a PLUS Loan will incorporate three different choices for repayment. Repayment options are: (a) monthly repayment of both principal and interest, the level plan; (b) interest only repayment, where one pays only the accrued interest charges while the student is enrolled; and (c) a program where the payment is calculated as a portion of one’s income. You may select the plan which best suits your personal situation.
It will also be necessary for your parents to complete the FAFSA application form. Currently, the rate of interest for the PLUS Loan is a fixed 8.5 percent and may not exceed 9 percent.
Loans of this type are amortized over a period of 10 years. The PLUS Loan may be repaid ahead of schedule without any prepayment penalty. Further, the repayment period will start within 2 months of full disbursement.
As with the majority of education loans, disbursements will be made in two parts, at minimum. The disbursements will generally be sent directly to the institution, but they may also be first delivered to your parents where they will need to endorse the check and then forward it to your school. Should there be any excess funds left after all costs have been satisfied, they will be refunded to your parents if they have not given authorization that such a refund go to you.
Additionally, one must take note of another extremely significant aspect of this particular sort of loan. You do not need to be concerned if you enjoy a good rapport with your parents. But since the PLUS Loan is made to your parents and is based upon their signature, they do have the authority to invalidate the contract.
The educational institution is required to send written documentation to your parents each time that funds are received on your behalf. The time frame for this documentation is strictly defined as no sooner than one month prior to and no later than one month subsequent to the receipt of the funds by your school.
Once your parents receive this notification, they have a fourteen day period during which they may rescind the entire loan, or any part of it, by notifying the school of their desire to do so. Your institution is then able to advise as to the beginning of the payment period.
Alternatively, should the loan funds be delivered to your parents directly via check, their failure to endorse it would also be a refusal of the money. Further, one should understand that this is the parents’ loan and that they have the obligation of repaying it.