PLUS Loans - Federal Student Loans to Parents

PLUS loans differ from federal student loans made to students. Parents can borrow much more — usually enough to cover gaps in the cost of education. However, there is no grace period and payments begin immediately.

Parents need to be aware that THEY are responsible for repayment on these loans, not the student. This is not a 'cosigner' loan where the student has equal accountability. The parents have signed the master promissory note to pay and, if they do not do so, it is their credit rating that suffers, not the students.

It is advisable to consider 4 year payments, rather than 1 year payments. What sounds like a "manageable" debt load of $200 a month in freshman year can suddenly mushroom to $800 a month by the time four years have been funded through loans, and can put a serious strain on the parents.

Under new legislation, graduate students are eligible to receive these loans in their own names. These loans have the same interest rates and terms of Parent loans.

Parents should also be aware that legislation raised the interest rate on these loans significantly — to 8.5% on July 1, 2006.

It is wise to make certain you completely understand PLUS loans and your responsibility before you apply.