Parent Loans

Taken from The Student Guide of the U.S. Department of Education

PLUS Loans enable parents with good credit histories to borrow to pay the education expenses of each child who is a dependent undergraduate student enrolled at least half time. PLUS Loans are available through both the Direct Loan and FFEL programs. Most of the benefits to parent borrowers are identical in the two programs.

Are there any borrowing requirements my parents have to meet?
Yes. To be eligible to receive a PLUS Loan, your parents generally will be required to pass a credit check. If they don’t pass the credit check, they might still be able to receive a loan if someone, such as a relative or friend who is able to pass the credit check, agrees to endorse the loan, promising to repay it if your parents should fail to do so. Your parents might also qualify for a loan even if they don’t pass the credit check if they can demonstrate that extenuating circumstances exist. You must meet the general eligibility requirements for federal student financial aid. Your parents must also meet some of these general requirements. For example, your parents must meet citizenship requirements and may not be in default or owe a refund to any SFA Program.

How much can my parents borrow?
The yearly limit on a PLUS Loan is equal to your cost of attendance minus any other financial aid you receive. For example, if your cost of attendance is $6,000 and you receive $4,000 in other financial aid, your parents could borrow up to—but no more than—$2,000.

NOTE: Your school can refuse to certify your parents’ loan application, or can certify a loan for an amount less than they would otherwise be eligible for, if the school documents the reason for its action and explains the reason to your parents in writing. The school’s decision is final and cannot be appealed to the U.S. Department of Education.

What's the interest rate on PLUS Loans?
The interest rate is variable, but it will never exceed 9 percent. The interest rate is adjusted each year on July 1. Your parents will be notified of interest rate changes throughout the life of their loan(s). Interest is charged on the loan from the date the first disbursement is made until the loan is paid in full.

How will my parents be paid?
For a Direct PLUS Loan, the U.S. Department of Education will send the loan funds to your school. For a FFEL PLUS Loan, the loan funds will be sent to your school by the lender. In most cases, the loan will be disbursed in at least two installments (no installment can be greater than half the loan amount). The funds will first be used to pay for your tuition and fees, room and board, and other school charges. If any loan money remains, your parents will receive the amount as a check or in cash, unless they authorize it to be released to you or to be put in your school account. Any remaining loan money must be used for your education expenses.

Will my parents have an opportunity to cancel their PLUS Loan after they apply?
Yes. Your school must notify your parents in writing whenever it credits your account with your Direct or FFEL PLUS Loan funds. This notification must be sent to your parents no earlier than 30 days before, and no later than 30 days after the school credits your account. Your parents may cancel all or a portion of their loan by informing your school that they wish to do so within 14 days after the date that your school sends this notice, or by the first day of the payment period, whichever is later. Your school can tell you the first day of your payment period. If your parents receive PLUS Loan funds directly by check, they may refuse the funds by not endorsing the check.

Is there a charge for a PLUS Loan?
Your parents will pay a fee of up to 4 percent of the loan ( 1% origination fee, and a 3% insurance fee). This fee is deducted proportionately each time a loan payment is made. For a FFEL PLUS Loan, a portion of this fee goes to the federal government to help reduce the cost of the loans. For a Direct PLUS Loan, all of this fee goes to the government to help reduce the cost of the loans. Also, if your parents don’t make their loan payments when they’re scheduled, they may be charged collection costs and late fees.

When do my parents begin repaying a PLUS Loan?
Generally, repayment must begin within 60 days after the final loan disbursement for the academic year.* There is no grace period for these loans. This means that interest begins to accumulate at the time the first disbursement is made. Your parents must begin repaying both principal and interest while you’re in school.

Is it ever possible to postpone repayment of a PLUS Loan?
Yes. Under certain circumstances, your parents can receive a deferment or forbearance on their loan. Deferment and forbearance are explained on page 13. Generally, the conditions for eligibility and procedures for requesting a deferment or forbearance that apply to Stafford Loans also apply to PLUS Loans. However, since all PLUS Loans are unsubsidized, your parents will be charged interest during periods of deferment or forbearance. If they do not pay the interest as it accrues, it will be capitalized.

Can a PLUS Loan be discharged (cancelled)?
Yes, under certain circumstances. A discharge releases your parents from all obligation to repay the loan. Your parents’ loan cannot be discharged because you didn’t complete your program of study at your school (unless you were unable to complete the program because the school closed), didn’t like the school or the program of study, or didn’t obtain employment after completing the program of study. For more information about loan discharge or repayment, Direct PLUS Loan borrowers should contact the Direct Loan Servicing Center. FFEL PLUS Loan borrowers should contact the lenders or agencies that hold their loans.

Direct PLUS Loans

The processes of applying for a loan, as well as the repayment plans offered, differ somewhat for Direct PLUS Loans and FFEL PLUS Loans.

How do my parents apply for a Direct PLUS Loan?
Your parents must fill out a Direct PLUS Loan Application and Promissory Note, which is available from your school’s financial aid office. Because your financial need does not have to be evaluated, it is not necessary for you or your parents to fill out a FAFSA to apply for this loan, unless your school requires it.

Do my parents need to find a lender?
No. Under the Direct Loan Program, their lender will be the U.S. Department of Education. Your school assists the federal government in administering the Direct Loan Program by distributing the loan application, processing the loan, and disbursing the loan funds.

How do my parents pay back the loan?
Your parents can choose the Standard, Extended, or Graduated Repayment Plan. The Income Contingent Repayment Plan is not an option for Direct PLUS borrowers.

FFEL PLUS Loans

The processes of applying for a loan and paying funds to the borrower, as well as the repayment plans offered, differ somewhat for FFEL PLUS Loans and Direct PLUS Loans.

How do my parents apply for a FFEL PLUS Loan?
Your parents must submit a completed PLUS Loan application (available from your school, a lender, or your state guaranty agency) to your school. After the school completes its portion of the application, it must be sent to a lender for evaluation. Because your financial need does not have to be evaluated, it is not necessary for you or your parents to file a FAFSA to apply for this loan, unless your school requires it.

How can my parents find a lender?
Your parents can contact your school or use the Internet as a way to find a lender. In addition the guaranty agency that serves your school may be able to help. For your agency’s address and telephone number, and for more information about borrowing, call the Federal Student Aid Information Center’s toll-free number: 1-800-4-FED-AID (1-800-433-3243)

How do my parents pay back the loan?
The lender will arrange a repayment schedule. The schedule will provide for a minimum of $600 to be paid annually and a maximum repayment period of 10 years (excluding periods of deferment and forbearance).





      

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The information presented on the NYSFAAA Website is provided as a service from the New York State Financial Aid Administrators Association to our constituents and represents our best efforts to assist students and their families in pursuing funding for higher education. NYSFAAA is a volunteer association of financial aid professionals representing the various institutions of higher education in New York State. We have collected information we believe to be important and reputable in finding and obtaining financial aid resources; however, we assume no liability for the use of this information. The New York State Financial Aid Administrator's Association, Inc (NYSFAAA) does not receive any money, gifts or compensation, related to educational lending activities, from any "lending institution" as defined in S620(8)a and S620(8)b of New York State Education Law. Hence, NYSFAAA does not meet the definition of "lending institution" as defined in S620(8)c of New York State Education Law. Therefore, institutions of higher education in New York and employees of those institutions are not subject to any potential conflicts of interest or legal restrictions under NYS Education Law in their interactions with NYSFAAA.*
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