Federal Student Loans To Parents

Some federal student loans are made directly out to the student, however, there is one loan that is made out to the parents of the student. These loans are also referred to as PLUS loans (standing for Parent Loan for Undergraduate Students). The difference between this loan and the one made out to the student is that the parents can borrow a lot more money. This will be enough to cover any left over gap of expenses for paying for education. Also, when the parents get the loan, they are the ones that are responsible for making the payments. They are not cosigning with their child. The payments, however, are started immediately, because there is no grace period on repaying the loan. Because of this, there are different payment plans that you can do to make things a little easier. Two of these options are a year 4 payment plan and a year 1 payment plan. Parents are recommended to use the year 4 option over the year1 option. The difference between them is an easier monthly payment amount.

Although parents are the only ones that can get this kind of loan, on July 1, 2006, a new legislation approved to graduates and professional students the option of receiving a PLUS loan in their own name. This new option is called the Grad PLUS loan. All of the terms that apply to the parents will stay the same for the graduate. The interest rates will also stay the same. Also on July 1, 2006, interest rates for this type of loan were increased to a fixed rate. The Direct Loan Program offers a 7.9% rate and the FFELP offers an 8.5% rate. With FFELP there is a chance that your rate will be lower depending on any other price competition that is out there.