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Parent PLUS College Loans

Federal PLUS Loans

Parents of undergraduate, dependent students who need help funding their child's educational expenses may want to consider applying for a Federal PLUS loan. The PLUS loan is federally-sponsored, so it has a low interest rate (around 8.5%) and some favorable repayment terms. Parents can borrow up to the entire cost of their student's education, minus any other forms of financial aid the student is receiving. There are some criteria involved with parents obtaining a PLUS loan.

These include:

  1. A credit check. If the parents do not qualify for a PLUS loan based on their credit history, many lenders will help them resolve these issues so that they can qualify in the near future. Also, many PLUS lenders will allow an "endorser", or a co-signer with a more favorable credit history, endorse the loan in order for the parents to obtain the funds.
  2. National status. Parents must be a citizen, resident national or qualifying non-resident to be eligible for a PLUS loan.
  3. Student must be a dependent. Parents cannot apply for a PLUS loan if their child has been declared an independent student.

The benefits of a PLUS loan make it a good option for families who have demonstrated financial need.

Some of the benefits are:

  1. No income or collateral is needed to qualify for the PLUS loan.
  2. The interest paid on this federal loan is tax-deductible.
  3. There are no prepayment penalties for paying off the balance of the loan early.
  4. There are many repayment options one the loan has been disbursed. Parents can delay repayment for several months after their child had finished school, and most lenders will work with the family to create payments that work within the family's budget.

There are many private loan options for parents who will need help with rising college costs; however, a Federal PLUS Loan is often more favorable both in interest and repayment terms than some of the available private loans. It is also important to remember that students should try to receive as much funding from other financial aid sources as possible before they look into loan options. Sometimes grants, scholarships, and work-study can reduce college costs enough so that families can afford to pay the remaining balance; however, when parents do need financial help, obtaining a PLUS loan is a smart option.