Federal PLUS Loan Massachusetts

Federal Parent PLUS Loans Explained

The Federal PLUS Loan program helps parents pay for their children's education at a reasonable rate of interest. Any parent of a dependent student is potentially eligible for a PLUS Loan.

The Federal PLUS Loan Program

How do my parents get a loan? How much can they borrow? These are the questions typically asked about the Federal PLUS Loan program. The PLUS Loan is an excellent way for your parents to help fund your education.

Created under the Higher Education Act of 1965, the Federal PLUS Loan was designed to help provide a low-cost resource for parents of dependent students to fund educational expenses. Eligibility for a PLUS Loan is based on your parents' ability to pass a credit check, as opposed loans like the Perkins Loan or the subsidized Stafford Loan, which are based on demonstrated need. Unlike other alternatives parents might consider to help fund their child's education, such as a home equity loan, the PLUS Loan does not require collateral. To be eligible for this loan, the student (and the student's parent) must be a U.S. citizen or national, U.S. permanent resident, or an eligible non-citizen. You must be enrolled at least half time in an eligible program.

Parent PLUS Loan Details

Some forms of federal financial aid, such as the Perkins Loan, require that students demonstrate financial need in order to qualify for assistance. If your parents qualify for the loan, they can borrow up to the full amount of your education costs after deducting other financial aid resources.

Lenders will check your parents' credit score and credit history before approving a PLUS Loan. Their credit score is based on their payment history of outstanding debts such as car loans, mortgages, or credit cards. It is important for parents to understand that the PLUS Loan will be in their name, not that of the student. Parents who want to co-sign on an educational student loan with their child should investigate privately funded student loans.

Direct or FFEL Loans

Most schools participate in either the William D. Ford Direct Loan or Federal Family Education Loan (FFEL) programs (although some participate in both). The federal government funds the Direct Loan Program, whereas FFEL Loan applicants borrow from a third party financial institution such as a bank, credit union, or other lender. Your parents can apply for either a Direct Loan or an FFEL Loan during any single enrollment period, but cannot take out both at the same time.

To apply for a Direct Loan, your parents must complete a Direct Loan application and promissory note, obtained from your school's financial aid office. To apply for a FFEL Loan, your parents can obtain the application from your school's financial aid office, a participating lender, or your state's guaranty agency. The loan application is submitted to the school, which completes its portion of the application before it goes to a lender. If your parents are unable to meet the credit standards for the Federal PLUS Loan, they can still take out a loan if they obtain the endorsement of someone who does meet the qualifications--someone who co-signs on the loan and agrees to pay if your parents are unable to do so. Your parents can also qualify for a PLUS Loan despite an adverse credit history if they can demonstrate that extenuating circumstances existed, which caused the credit problems. For more information, contact your school's financial aid office.

How PLUS Loan Funds Are Dispersed

PLUS Loan funds are distributed directly to your school (for both the Direct Loan or FFEL Loan programs). Sometimes the school may require that parents endorse the PLUS Loan disbursement check and return it to the school before the apply the funds to your account. PLUS Loans are generally dispersed in installments consistent with the school's academic terms. The loan funds are applied to outstanding school charges and if funds remain, the school cuts a check to your parents for the remainder. However, your parents can also elect to release any excess funds directly to you. If your parents authorize it, excess funds can also be held by the school for future charges.

The Interest Rate, Charges, and Repayment Terms for PLUS Loans

The interest rate for all PLUS Loans is fixed at 7.90% for the Direct Loan program or 8.50% for the FFEL program. Interest is charged from the date funds are dispersed until the loan is repaid. In addition, a processing fee of up to 4% of the loan can be deducted proportionately from each loan installment. The first payment on a PLUS Loan is due 60 days from the date the funds are dispersed. Direct Loan payments are sent to the Department of Education and FFEL Loan payments are sent to the lender or the lender's agent.

The PLUS Loan program offers cancellation, forbearance, and deferment options. Contact your lender for details.

Sources:
ParentPLUSLoan.com
StudentAid.Ed.Gov

Starting in the 2009 tax year, under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify over the next two years for a tax credit, the American Opportunity Credit, to pay for college expenses.

The American Opportunity Credit is not available on the 2008 returns taxpayers are filing during 2009. The new credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits

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