Repaying PLUS Loans

The Federal PLUS Loan offers a great opportunity for parents to help their dependent children pay for higher education. If you and your family worked together to pay for your school with a Federal PLUS loan, it may be time to have an important conversation about loan repayment.

Parental Responsibility
The Federal PLUS Loan doesn't have a grace period before repayment, and your parents are expected to begin making payments on the interest and principle within 60 days of the loan's disbursement. For Federal PLUS Loan papers 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 to reflect market rates. 

A Federal PLUS Loan comes with several repayment options. A graduated payment starts with a low monthly repayment and increases over time, while the extended payment extends the time period up to 30 years in order to give your parents plenty of time to repay the loan. Deferment and forbearance may be available, but because the Federal PLUS loan is unsubsidized, interest payments must be made even if the principle payments are deferred. That means your parents are  be responsible for some part of this loan, even in times of financial trouble.

Regardless of your financial situation or family status, responsibility for repaying the Federal PLUS Loan falls on the parent or parents who initially signed on the loan. Failure to make loan payments will only affect the credit scores of the individuals who signed on the loan. If you suspect that your parents will have trouble repaying the loan on time, you should contact your lender immediately.

Student Responsibility
Students have no legal responsibility with the Federal PLUS Loan, but it may help your parents if you help them with the repayment plan once you've left school. If your parents have taken out a Federal PLUS loan on your behalf, meet with them about your loan responsibilities. By working out a repayment schedule, you can help with some or all of the financial burden of your online education.

Setting Family Priorities
Your family may have other debts in addition to the Federal PLUS Loan. It may be a smart financial move to accelerate the payment of bills with the highest interest rates. Furthermore, it may be possible to simplify the payment process through refinancing a home mortgage or taking out a consolidation loan.

While the parent or guardian is legally responsible for payments on the Federal PLUS Loan, repaying the loan can be a team effort between parents and the new degree-holder. Work together and the burden will be lighter for everyone.