Repaying PLUS Loans

The Federal PLUS Loan offers parents a way to help their children pay for their education. If your family obtained a Federal PLUS loan, it's important to understand how loan repayment fits into your family's financial plan.

For Parents
Unlike other student loans, the Federal PLUS Loan doesn't have a grace period, so you or your parents are expected to start making payments on the principle and interest within 60 days of loan disbursal. If the Federal PLUS Loan papers were signed after July 1, 2006, the interest rate is fixed at 7.94%. The interest rate for loans taken out before that date cannot exceed 9%, and variable interest rates are adjusted each year.

The Federal PLUS Loan has several repayment options. In addition to the standard repayment plan, there are graduated payments, which increase over time, or an extended plan, which allows up to 30 years to repay the loan. An income-contingent repayment plan is not an option for Federal PLUS Loans. Deferment and forbearance may be available, but because the Federal PLUS loan is unsubsidized, interest payments must be made even if the request is granted.

Setting Priorities
It's likely that your family will have other debts in addition to the PLUS Loan. It's always a good idea to pay off the highest interest rate debts as quickly as possible, so your parents should prioritize the mortgage, car, credit card, or personal loan payments accordingly. It may be possible to consolidate debt through refinancing a mortgage if your family owns a home.

For Students
If your parents have taken out a Federal PLUS loan on your behalf, you may want to help them with repayment. When you graduate, you'll want to create a new budget, and if applicable, include monthly payments on the interest and principle of the loan. By working out a repayment schedule, you can help take over some or all of the costs of your online education.