A Federal PLUS loan is one that your parents may consider to help pay for the cost of your college education. This is a great option due to the low interest rates on the loans. That means more of what is paid back will go towards the principal amount that was used for educational purposes. The fixed low rate will guarantee what has to be paid back is affordable. You want to avoid variable interest rates because they could skyrocket.

PLUS Loans require Good Credit

This particular type of loan for college is only approved for those that have very good credit. The funds can be used for all types of college related expenses. They include tuition, books, housing, fees, and more. However, not all individuals qualify for a PLUS loan. One of the huge requirements that weed out plenty of applicants has to do with the credit check.

The reason for the credit check is because this type of loan for schooling doesn’t require any type of collateral. Therefore, the lender needs to feel reasonably sure that the borrower is in a position where they will be able to repay the funds. They don’t want to take risks with people that may default on the money that has been loaned to them.

Graduate PLUS Loans

A PLUS loan can also be considered by an adult that is going to apply for graduate school. The cost of higher levels of education can be a burden if you don’t have a plan of action to get funds you can reasonably pay back later on once you graduate. Any student that is approved for this type of financial assistance with college must be at least a part time student.

Financial need not Required for Federal PLUS Loans

One of the differences between other forms of aid for college and the student PLUS loan is that you don’t have to show financial need to be eligible. This is important because some people earn too much money to be eligible for various forms of Federal financial aid for college. Yet they don’t make enough to pay for the cost of graduate school or for their child’s college education out of pocket.

However, it is important to note that even though financial need isn’t required for a federal PLUS Loan, the FAFSA application does have to be completed first. This is because all forms of other financial aid that a student may be eligible for has to be allocated before a PLUS loan. Therefore, if a child is deemed eligible for a Pell Grant then they may only be approved for a partial amount of funding through the PLUS Loan program.

The reason for this though is to help reduce the amount of responsibility for students and their parents when it comes to paying for education. With Pell Grants, scholarships, and other forms of financial aid the funds don’t have to be repaid. However, with any types of loans, including the PLUS Loan program, the funds do have to be repaid and there is interest that accrues during the period of time while the student is attending classes.

The interest rate for a PLUS Loan is set at 7.9% with a 3% origination fee and a 1% default fee. There is a reduction of the interest rate of .25% when payments are scheduled to be automatically debited from a checking account on a monthly basis. In most instances some or all of the interest paid for this type of loan is tax deductible. It is a good idea to talk it over with your tax preparer to see what you may qualify for.

The amount of money that can be borrowed annually depends on the individual needs of the student. First, the total cost of attendance for that year of school will be calculated. Then all other forms of financial aid that the person qualifies for will be deducted. The amount that remains is the maximum that may be borrowed with the Federal PLUS loan.

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