What are PLUS loans?

Short Answer

PLUS loans are federal student loans offered to parents of undergraduate students or to graduate and professional students. These loans help cover education costs that are not covered by other financial aid.

They usually have higher interest rates than other federal loans and require a credit check. PLUS loans are useful for covering additional expenses but must be repaid with interest.

Detailed Explanation:

1. PLUS loans meaning

1.1 What are PLUS loans

PLUS loans are a type of federal student loan provided by the government. The term “PLUS” stands for Parent Loan for Undergraduate Students. These loans are available to parents of undergraduate students and also to graduate or professional students.

The main purpose of PLUS loans is to help cover the remaining cost of education after other financial aid, such as scholarships or basic federal loans, has been used. They are designed to fill the gap when other funding is not enough.

1.2 Who can apply for PLUS loans

There are two main types of PLUS loans based on who applies. One is the Parent PLUS Loan, which is taken by parents to support their child’s education. The other is the Grad PLUS Loan, which is taken by graduate or professional students for their own education.

Unlike some other federal loans, PLUS loans require a basic credit check. Borrowers must show that they do not have serious negative credit history.

1.3 Purpose and usage

PLUS loans can be used to pay for various education-related expenses such as tuition fees, books, housing, and other costs.

These loans are especially useful when other forms of financial aid do not fully cover the total cost of education.

2. Features and considerations of PLUS loans

2.1 Higher interest rates

PLUS loans usually have higher interest rates compared to other federal student loans like subsidized or unsubsidized loans.

This means the total cost of borrowing is higher, so borrowers need to plan repayment carefully.

2.2 Credit check requirement

Unlike most federal loans, PLUS loans require a credit check. Borrowers must not have serious credit problems.

If the borrower has a weak credit history, they may need a co-signer or may face difficulty in getting approval.

2.3 Flexible borrowing limit

One important feature of PLUS loans is that they allow borrowers to take up to the full cost of education, minus any other financial aid received.

This makes them useful for covering remaining expenses that other loans or scholarships do not cover.

2.4 Repayment structure

Repayment of PLUS loans usually begins soon after the loan is disbursed. However, some borrowers can request a delay in payments while the student is still studying.

Interest continues to accumulate during this period, increasing the total loan amount.

2.5 Fixed interest rates

PLUS loans have fixed interest rates set by the government. This means the rate remains constant throughout the loan period, providing stability in repayment.

2.6 Financial responsibility

In Parent PLUS Loans, the parent is responsible for repayment, not the student. This is an important factor to consider before taking the loan.

In Grad PLUS Loans, the student borrower is responsible for repayment.

2.7 Impact on long term finances

Because of higher interest rates and large borrowing limits, PLUS loans can create a significant long-term financial burden.

Borrowers should carefully evaluate their ability to repay before taking these loans.

Conclusion

PLUS loans are federal loans designed to cover additional education costs for parents and graduate students. While they provide flexible funding, they come with higher interest rates and require careful financial planning for repayment.