Do parents have to repay that Plus loan from FAFSA?

Question

We got back the financial papers from the college and it says that they will give this plus loan to us. What is this federal direct plus loan?

Answer 1

It depends. "PLUS" used to stand for "Parent Loan for Undergraduate Students" but now it means a little more...

If you are an undergraduate student, only your *parents* can borrow a PLUS loan. A student cannot borrow PLUS loan in his/her name. As such, PLUS loans will appear on your parent's credit report and your parent will need to repay.

Beginning July 1st, graduate students will also be eligible to borrow PLUS loans -- basically, they act as their own "parent," completing both sections of the PLUS application. (In this sense, a PLUS is no longer exclusively a loan that parents borrow for their children.) So, if you are a graduate student and have been offered a PLUS, *you* will be the borrower and it will appear on *your* credit report. This loan is sometimes referred to as a GradPLUS loan or simply a "PLUS Loan for Graduate Students."

With regard to repayment: there is a slight difference between the Direct PLUS Loan (which you were offered) and the Federal PLUS Loan... With Direct PLUS, if the student really wanted to, she/he *could* consolidate this PLUS with the rest of his/her Federal Stafford and/or Perkins Loans. With Federal PLUS, the only way you can consolidate it is if YOU are the borrower -- meaning that the parent can consolidate it with his/her other loans or a Grad PLUS borrower can consolidate his/her Grad PLUS with his/her other Stafford/Perkins loans. The student cannot consolidate his parent's Federal PLUS loan.

Now, it's worth mentioning that PLUS is a credit-based loan so, even though your school offered it to you, you will still need to undergo a credit check before you can officially be approved to borrow this loan.

Answer 2

FEDERAL STUDENT LOANS TO PARENTS

Usually these are described as PLUS loans (Parent Loans for Ungraduate Students). Unlike loans made to students, parents are able to borrow much more - usually enough to cover any gap in the cost of education. However, there is no grace period whatsoever. Payments start immediately.

Parents should be aware that THEY are responsible for repayment on these loans, not the student. This is not a 'cosigner' loan with the student having equal accountability. The parents are on the hook to pay and if they do not do so, it is their credit that will suffer.