Plus Loans

Definition

Plus Loans are federal loans designed to help parents of dependent undergraduate students and graduate or professional students cover the costs of higher education. They are part of the Federal Direct Loan Program and are intended to bridge the gap between the financial aid package and the total cost of attendance, ensuring that families can afford educational expenses.

5 Must Know Facts For Your Next Test

1. Plus Loans require a credit check, but they do not have strict credit score requirements like private loans.
2. Parents can borrow up to the total cost of attendance minus any other financial aid received by the student.
3. Interest rates on Plus Loans are fixed, making it easier for borrowers to budget their repayments over time.
4. Repayment for Plus Loans begins immediately after the loan is disbursed, although there are options for deferment under certain circumstances.
5. In cases where a parent borrower passes away or becomes permanently disabled, the loan may be discharged, providing some relief for families.

Review Questions

• Compare and contrast Plus Loans with other types of federal student loans in terms of eligibility and repayment options.
  • Plus Loans differ from other federal student loans such as Subsidized and Unsubsidized Direct Loans primarily in terms of eligibility. Plus Loans are available specifically to parents of dependent undergraduate students and to graduate students themselves, whereas other federal loans are generally based on the student's financial need. Repayment for Plus Loans also begins immediately after disbursement, unlike some other federal loans that offer a grace period or deferment options during school enrollment.
• Discuss how Plus Loans impact a family's overall financial strategy for funding higher education.
  • Plus Loans play a significant role in a family's financial strategy by providing additional funding when financial aid packages fall short. Since they allow borrowing up to the full cost of attendance minus other aid, families can use these loans to cover gaps in tuition or living expenses. However, taking out Plus Loans also requires careful consideration of future repayment obligations, as parents may need to balance these payments with other financial commitments.
• Evaluate the long-term implications of relying on Plus Loans for funding higher education and how it affects both parents' and students' financial health post-graduation.
  • Relying heavily on Plus Loans can lead to significant long-term financial implications for both parents and students. Parents may face high monthly payments as they enter retirement or while trying to manage their own financial needs. For students, borrowing additional amounts could increase their overall debt burden if they also take out student loans. This situation can limit future financial opportunities, impacting everything from career choices to homeownership, thus creating a cycle of debt that can take years to resolve.

Related terms

Federal Direct Loan Program: A government program that provides low-interest loans to students and their parents to help pay for college, including subsidized and unsubsidized loans.

Cost of Attendance: The total estimated cost of attending a college or university, including tuition, fees, room and board, books, and other personal expenses.

FAFSA: The Free Application for Federal Student Aid, a form used to determine a student's eligibility for financial aid, including grants, loans, and work-study.