Direct Plus Loans: Assistance for Parents

2007-03-08 10:33:40

( Financial )



To qualify for plus loans, the parent of the student must be a U.S. citizen, national or an eligible non-citizen and pass a credit check.

There is no minimum amount that one can borrow; however, the maximum amount is equal to the total cost of one’s education including tuition, books, room and board, school supplies, travel expenses, laboratory expenses and other miscellaneous expenses related to their education. Plus loans are low rate loans with the annual interest rate adjusted every year by the Department of Education and are tax deductible. Aside from the interest rate charged, parents will need to pay a fee deducted from the loan amount released. This fee goes to the federal government and sometimes to a guaranty agency. This fee helps in the cost reduction of plus loans.

Once plus loans are granted, repayment starts within 60 days after disbursement. Repayment length is dependent on the repayment plan that your parent opts for. There are four plus loans repayment schemes:

The Standard Repayment Plan asks you to pay a fixed amount per month for up to ten years. The amount of time for repayment will be based on the amount of your loan.

The Extended Repayment Plan allows you to pay your loan within 12-30 years. Monthly payments are much lower, but the loan rate of interest is higher because of the longer repayment time.

The Graduated Repayment Plan has lower initial monthly payments, but monthly payments increase as the years go by. Your initial monthly payments will be equal to either the loan rate of interest on your loan between payments or half the payment due each month using the Standard Repayment Plan, whichever is greater. Interest rate is also higher because of the longer repayment time.

The Income Contingent Repayment Plan’s monthly payment is based on your annual income, the size of your family, loan rate of interest and loan amount. Your income is proportionate to your payments. There is no need to pay off the balance if 25 years have passed, but taxes on the outstanding amount would be due.

If the parent encounters any financial problems while repaying plus loans, one can apply for deferment or forbearance. Any forbearance or deferment in payment will incur an interest for each month they are unable to pay, plus late charges and collection fees. Forbearance is granted if you are unable to pay because of sickness or other unforeseen problems, were obligate to pay amounts equal or greater than a certain percentage of your gross monthly income or are performing medical or dental residency or internship for a certain period of time.

Plus loans applications may be coursed through banks, credit unions or any savings or loan associations.


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