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What is a PLUS Student Loan?

A PLUS student loan is a federal student mortgage that can be taken out through mother and father of students to be able to assist them to pay for their child’s education. PLUS student loans also can be taken out by students enrolled in graduate programs. PLUS student loans function like conventional bank loans, requiring a credit check and typically presenting higher interest prices and fewer repayment alternatives than other student loans.

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How Do They Work?

Parents and grad students looking to apply for a PLUS student loan must have first completed the Federal Application for Student Aid (FAFSA). Once completed, the next step is to apply for a PLUS loan on studentloans.gov. If the applicant meets the required financial history stipulated by the PLUS loan program, they can then chose to begin making payments on the loan immediately or chose to defer payments for up to six months after graduation. Once payment begins, the borrower is required to make monthly payments for a period of 10 to 25 years, depending on the payment plan chosen.

Graduate PLUS Loans

Graduate PLUS loans are designed for students in graduate programs at college who have already exceeded the maximum amount of federal student loans they are allowed to take out. Unlike many other student loans that have borrowing limits, graduate PLUS loans allow you to borrow the entire cost of your graduate degree. Unlike other federal loans, a graduate PLUS loan requires a credit check. Interest paid on a Graduate PLUS loan may be eligible for tax deduction.

Parent PLUS Loans

PLUS loans are a decent student loan option for parents looking to secure a loan with a federal guarantee. Parents can take out a PLUS loan for their child’s education when they are looking to put them through school without them having to assume too much student debt on their own. Because of the high interest rates associated with PLUS loans, it is recommended that parents try looking at private lending options before committing to a parent PLUS loan.

Rates (%)

The interest rate on PLUS student loans sits at 7.6%, which is a full percentage higher than unsubsidized federal student loans. Because PLUS loans require a credit check, it may be worth shopping around for a private student loan before committing to a PLUS loan, as you may find yourself with a better interest rate, especially if your credit score is good (you can check our credit rebuilding guide).

Credit Requirements

Although PLUS loans do require a credit check, there is actually no minimum credit score required in order to be approved for a PLUS loan. Instead, you must prove that you do not have an adverse credit history. If you have debt payments of more than $2,085 that are over 90 days late, your credit history will be considered adverse and your application will be denied. Your application will also be denied if you’ve declared bankruptcy or have gone into foreclosurein the last five years.

Advantages and Disadvantages

A PLUS student loan can be the funding you need for you or your child’s school when you have few options to turn to. Because of the low credit requirements, the government’s guarantee and the absence of a limit on how much money you can borrow, a PLUS student loan may be just what you need to get through your degree without working 100 hours a week.

However, the high-interest rates and limited repayment optionsmake PLUS loans much less ideal than most other student loans. For that reason, it is best to look at them as a last resort if you have not yet explored all of the federal and private student loan options available to university students. PLUS student loans also accrue interest immediately, so even if you opt not to make any payments until after you or your child has finished their degree, the interest will be racking up the whole time.

Forgiveness

PLUS student loans are eligible to qualify for Public Student Loan Forgiveness (PSLF), meaning if you or your child find themselves working in one of the eligible public service jobs post-university, including education and law enforcement the government may forgive all or part of your PLUS student loan. To find a full list of eligible professions, visit studentloans.gov. If you are not eligible for the public student loan forgiveness program, consolidating your loan or inquiring with your employer about whether they offer student loan assistance are two other great ways to lower the impact of your PLUS student loan.

While it’s great that a program like PLUS student loans exists, as there are multiple instances where taking one out is necessary to financing you or your child’s education, it is important to look at a PLUS loan as a last resort. The interest rates and repayment plans might not seem like the end of the world at first, but the accrued interest on a PLUS loan can end up being a burden on your financial freedom for many years.

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