No parent wants to see a child take on crushing debt, especially when it comes to college.
But PLUS loans have come under fire in recent years.
Critics decry the ease with which parents obtain big loans that have high interest rates, no annual borrowing limits and fewer protections than federal loans for students have. Before you sign the dotted line on your own PLUS loan, here’s everything you need to know.
Covering the gap
Direct Parent Loans for Undergraduate Students (PLUS), often referred to as Parent PLUS Loans, help families pay for college costs that are not covered by other financial aid, such as loans, scholarships or grants. To acquire a PLUS loan, you must fill out the Free Application for Federal Student Aid (FAFSA). The amount you qualify for will be included in the student’s financial aid award letter.
But this particular loan is different from any other federal student loan.
Repayment of the PLUS loan falls on the shoulders of parents; it can never be transferred to the student, even after graduation. Parents are required to sign a Master Promissory Note when agreeing to the terms of the loan, which means they are solely responsible for the loan and are not acting as cosigners.
The maximum amount parents can borrow is the total cost of college — tuition, books, housing and so on—minus any other financial assistance the student has been awarded. In other words, all the costs that are left over once you’ve exhausted other types of aid.
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