What it means
PLUS stands for Parent Loan for Undergraduate Students, and the government lends the money directly to the borrower. A parent can borrow up to the cost of attendance, minus any other financial aid the student receives.
This makes it a flexible way to fill a funding gap when scholarships, grants and other loans fall short. Unlike many federal student loans, a PLUS loan requires a check for adverse credit history.
A borrower with a recent record of serious unpaid debts may be refused unless they find an endorser or show that special circumstances apply. The loan is not based on the borrower's income, so it can be taken out even when repayment is difficult.
The interest rate is fixed for the life of each loan and is set under federal rules, and it has generally been higher than the rate on loans for undergraduates themselves. The borrower also pays an origination fee, which is a percentage of the loan deducted from each payment.
Interest begins to build when the money is paid out. Repayment normally begins soon after the money is paid, but a parent can usually ask to delay repayment while the student is in school, though interest keeps accumulating.
Unpaid interest may be added to the balance, making the loan larger. Parents should therefore consider paying interest during study if they can.
Because the loan is the parent's legal debt, the student is not responsible for repaying it. This is important for family planning, since the borrower's own retirement savings and credit may be at risk.
Advisers often recommend using scholarships, savings and student loans first, and looking at PLUS loans as a last resort. Rules, limits, fees and rates change over time, so borrowers should check the current terms on the official government website.
Comparing a PLUS loan with private loans is also worthwhile, as private lenders may offer lower rates to borrowers with strong credit but fewer protections. A simple repayment calculation before borrowing helps avoid surprises.
In practice
Real-world examples.
Example
A parent needs $15,000 to cover the gap between college costs and a scholarship. She applies for a PLUS loan, passes the credit check and receives the money net of the fee. She sets up automatic monthly payments.
Example
A father is refused a PLUS loan because of a recent unpaid debt. He asks a relative to act as an endorser, who agrees to share responsibility for repayment. The loan is then approved.
Example
A graduate student in the past used a graduate version of the loan to pay for law school. Because the borrower was the student, repayment fell on her. She later enrolled in a repayment plan suited to her income.
Formula
Calculation
Net amount received = loan amount - origination fee
Origination fee = loan amount x fee rate
Assume a parent borrows $20,000 and the origination fee is 4%, which is a round figure used for illustration only. The fee is $20,000 x 4% = $800, so the net amount received is $20,000 - $800 = $19,200.
If the fixed interest rate is 8% a year, interest in the first year on the full $20,000 is $20,000 x 8% = $1,600. The parent still owes $20,000 plus interest, even though only $19,200 reached the college, so the real cost of the money is higher than the stated rate.Case study
Seen in the real world.
Kelderwood Family is a fictional household, and this story is illustrative. Their daughter's college cost $30,000 a year, and after scholarships and student loans there was a gap of $10,000 a year.
The parents took a PLUS loan of $10,000 each year for four years, a total of $40,000, with a 4% fee on each, which cost them 4% x $40,000 = $1,600 in fees. They did not realise that interest was building during the study years, and at an 8% rate the balance had grown by roughly $8,000 by graduation.
They set up a plan to repay the loan over ten years and paid extra when they could. They also warned younger relatives to compare all funding sources before borrowing. The illustrative lesson is that a PLUS loan is easy to obtain but costly, and that planning for fees and interest is essential.
Watch out
Common mistakes.
- Borrowing the maximum amount available instead of the amount actually needed.
- Ignoring the origination fee, which reduces the money received but not the amount owed.
- Assuming the student is responsible for repaying a parent's loan, when the debt belongs to the parent.
Questions
People also ask.
Who can get a PLUS loan?
A parent of a dependent undergraduate student who passes the credit check can generally apply.
Is a PLUS loan based on income?
No, it is based on credit history and the cost of attendance, so affordability needs a separate check.
Can I refinance a PLUS loan?
It may be possible through a private lender, but moving a federal loan to private means losing federal protections.
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