Federal Parent Loans for Undergraduate Students (PLUS)
To bridge the gap between their dependent child's federal Stafford loan allocation and the cost of school, parents of undergraduate students are eligible to borrow up to 100% of their child's cost of education (less other aid received) in federal Parent Loans for Undergraduate Students (PLUS) loans. For many parents, federal PLUS loans may be an attractive alternative to using savings, income, retirement accounts or home equity loans to pay for their child's undergraduate education.
Access to these loans is not income based, so even Bill Gates or Donald Trump would qualify for a PLUS loan. The credit approval standards for a PLUS loan are minimal and no collateral is required.
After July 1, 2006, these loans will carry a fixed 8.5% interest rate and payments may be deferred while the student is in school (deferred interest payments are added to the principal amount of the loan). PLUS loans issued prior to July 1, 2006 carry a variable interest rate that is reset every July 1 based on then-prevailing market interest rates.
Credit eligibility for federal PLUS loans is not based your on debt-to-income ratio or your credit score (as eligibility for private student loans and home equity loans is). You will be eligible for a PLUS loan, even if you have a high debt-to-income ratio or a bad credit score, as long as you don't have an "adverse" credit history. That is, as long as you haven't been more than 90 days late on any debt and don't have any defaults, bankruptcies or other adverse action on any education debt, you should be eligible to borrow PLUS loans.
You must start repaying your PLUS loan within 60 days of disbursement although many lenders will allow payments to be deferred while the student is in school. The standard repayment term is 10 years. PLUS loans are eligible for consolidation under the Federal Student Loan Consolidation Program. Consolidating your PLUS loans will allow you to extend your repayment period up to 30 years, and significantly reduce your monthly payments.
In addition, because the interest rate on a federal consolidation loan is capped at 8.25%, consolidating PLUS loans issued after July 1, 2006 will effectively reduce the interest rate on those loans by 0.25% (from 8.5% to 8.25%).
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