PLUS Loans

A PLUS loan (Parents Loans for Undergraduate Students) is a federal direct loan designed to help parents fill in the holes that may be left by other types of student loan financing. For a parent this is an excellent option for financing your child’s education. The PLUS loan is through the government and you can borrow up to the total cost of your child’s tuition minus any other loans they may receive.

PLUS loans are not need based and can be used to pay for tuition, room and board, books, fees, transportation and other education related expenses. The loan can also be used to cover expenses incurred prior to obtaining the loan.

Most parents will have some type of college fund for their child, but rarely is it enough to foot the whole bill for all four years. Parents may choose to liquidate assets or take some of the equity out of their home with a home equity line of credit or a second mortgage. The interest on the home equity line of credit and the PLUS loan are tax deductible.

The interest rate on the PLUS loan is currently fixed at 7.9 percent. The interest rate on you home equity line of credit can vary depending on many factors. The other big drawback of the home equity line of credit is that it is secured with your home. If something would happen and you were not able to make your payments your lender could foreclose on your home.

The following requirements are needed for a parent to quality for a PLUS loan:
• be a natural, step or adoptive parent of a dependent student
• be a US Citizen, a qualified non-citizen and have a valid Social Security number
• have credit that qualifies

Your child must meet the following requirements:
• be less than 24 years of age
• be single
• have no dependents
• be enrolled half-time

If you are having financial problems, the government has deferments and hardship programs that they are able to offer you and in the case of the death of the borrower, the loan is forgiven. For this reason a PLUS loan should never be consolidated or refinanced into a secured loan of any type. There will be companies out there that will try to talk you into it.

For a parent wanting to help their child through college, a PLUS loan is one of the best loan options going today.