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Federal Parent Loan for Undergraduate Students (PLUS) Loans

The Federal PLUS Loan program allows parents of undergraduate students to borrow up to the full cost of their children's education, less any other financial aid for which the student is eligible. For example, if your cost of attendance is $6,000 and you are eligible for $3,000 in other financial aid, your parents can borrow up to $3,000. Because PLUS Loans are not based on financial need, they can be used to cover a student's expected family contribution.

PLUS Loans are available from lenders participating in the Federal Family Education Loan (FFEL) Program, and from postsecondary institutions participating in the Federal Direct Student Loan (FDSL) Program. Parents can apply for either the Direct PLUS Loan or the FFEL PLUS Loan, but not both for the same child for the same enrollment period. (Parents can apply for a Direct PLUS Loan for one child and a FFEL PLUS Loan for another.) Rates and Fees:

The interest rate on these loans varies annually, adjusted on July 1, but may not exceed 9%. The current rate is 4.17%.

Lenders may subtract a 3% loan origination fee and a 1% insurance fee. (Parents receiving a Direct PLUS Loan will be charged a combined 4% fee.) Fees are deducted proportionately each time a loan payment is made.

Eligibility

Borrowers do not have to demonstrate financial need, but they do have to demonstrate that they do not have an adverse credit history. (If a credit problem shows up during the credit check, borrowers may still be able to receive a loan if a relative or friend with a good credit history co-signs the loan or if the borrower can demonstrate extenuating circumstances that led to the credit problem.)

Borrowers can apply for either a Direct PLUS Loan or a FFEL PLUS Loan, but not both, for the same child for the same enrollment period. They can, however, apply for a Direct PLUS Loan for one child and a FFEL PLUS Loan for another.

Application Procedure

A student applying for a line must fill out a Common Loan Application and Promissory Note (http://www.parentplusloan.com). (A FAFSA is not required unless the student's school requires it.)

Repayment

Repayment begins within 60 days of taking out the loan but can be deferred while the student is attending school -- however, interest will continue to accrue during the deferment. The lender will arrange the repayment schedule, which can extend to a maximum of 10 years, excluding any periods of deferment or forbearance. The minimum annual payment is $600.

Formerly called the Guaranteed Student Loan Program, Stafford loans are low-interest loans available to undergraduate and graduate students enrolled at least half-time, without regard to financial need. Federal Stafford Loans let students borrow money for educational expenses directly from commercial lenders such as banks, credit unions, savings and loan associations, and other lending institutions, or, for colleges participating in the Federal Direct Student Loan (FDSL) Program, from the U.S. government. Stafford loans can be either subsidized or unsubsidized.

These loans are similar to Federal Perkins Loans, except that the interst rate is higher and the grace period is shorter.

There are two types of Federal Stafford Loans:

• Subsidized Stafford Loans are awarded to students with demonstrated financial need. (The federal government pays the interest while the student is in school and during any deferment period.)
• Unsubsidized Stafford Loans may be awarded to students who do not have demonstrated financial need and therefore do not qualify for a subsidized loan, or to students who need additional funds. (Interest on the loan accrues while the student is in school and during any deferment.)

You do not have to start repaying the principal of either type of Stafford Loan until six months after you leave school (or after you stop attending at least half-time).

A combination of subsidized and unsubsidized Staffords may be awarded to students with partial financial need, depending on the students' status (dependent vs. independent) and demonstrated level of need. Who's eligible?

Most states require Stafford borrowers to be full-time students (although a few do permit half-time students to borrow under the program). More than 5 million students participate in the Federal Stafford Loan Program each year. How much can I borrow?

If you are a dependent undergraduate, you can borrow up to:

• $2,625 if you're a first-year student enrolled in a program of study that is at least a full academic year
• $3,500 if you've completed your first year of study and the remainder of your program is at least a full academic year
• $5,500 a year if you've completed two years of study and the remainder of your program is at least a full academic year

If you're an independent undergraduate or a dependent student whose parents are unable to get a PLUS Loan, you can borrow up to:

• $6,625 if you're a first-year student enrolled in a program of study that is at least a full academic year (Only $2,625 of this amount may be in subsidized loans.)
• $7,500 if you've completed your first year of study and the remainder of your program is at least a full academic year (Only $3,500 of this amount may be in subsidized loans.)
• $10,500 a year if you've completed two years of study and the remainder of your program is at least a full academic year (Only $5,500 of this amount may be in subsidized loans.)

What interest rate and/or fees will I be expected to pay?

For borrowers who received their loans on or after July 1, 1994, the interest rate is variable (it can change each year of repayment), depending on changes in the federal treasury bill interest rate, but will never exceed 8.25%. The interest rate is adjusted each year on July 1. The current rate is 2.77% for students in school or in the six month grace period, and 3.37% for students in repayment.

If you have a subsidized Stafford Loan, you won't be charged interest while you are enrolled in school at least half-time, during the six-month grace period after you graduate or leaves school, or during any authorized period of deferment.

If you have an unsubsidized Stafford loan, you'll be charged interest from the day the loan is disbursed until it is repaid in full, including while you are in school, during the six-month grace period, and during any deferment periods. You have the option to pay the interest during these periods, or it can be capitalized.

Federal Stafford Loan borrowers are charged origination fees and insurance fees. These combined fees cannot exceed 4% of the amount borrowed, and they are deducted from your loan before you receive payment. If you don't make your loan payments on time, you may also be charged collection costs and late fees.

How soon do I have to start repaying my Stafford loans?

Subsidized Stafford -- Repayment on both interest and principal is deferred until six months after a student graduates or leaves school.

Unsubsidized Stafford -- Repayment begins when the loan is disbursed, although the borrower may opt to postpone payments until leaving school; however, interest begins to accrue immediately.

Application Procedure:

1. Complete the Free Application for Federal Student Aid (FAFSA) (http://www.fafsa.ed.gov), or the Renewal FAFSA if applicable. After your FAFSA has been processed, your school will review the results and inform you about your loan eligibility.

2. Complete a Federal Stafford Loan Application and Promissory Note (http://www.staffordloan.com). (NOTE: Your school can refuse to certify your loan application, or can certify the loan for an amount less than you would otherwise be eligible for, if the school documents the reason for this action and explains this reasoning to you in writing. The school's decision is final.)