Federal PLUS Loan frequently asked questions
See what other parents are asking and the answers our Education Finance Advisors are giving.
Help your child succeed
How much should I save? 
How much you need to save depends on the school your child attends. Tuition and fees at public colleges are generally lower than those at private schools. Regardless of the school, though, education costs have been rising, and are expected to continue increasing over the next decade.
Here’s how much college funding you'll need to save to send one child to an average four-year private or public college. Don't let these numbers frighten you. Start implementing your College Savings Plans today.
| Child's Age |
Private College* |
Public College* |
| One |
$257,543 |
$118,312 |
| Four |
$222,475 |
$102,200 |
| Eight |
$183,031 |
$84,080 |
| Twelve |
$150,580 |
$69,173 |
| Sixteen |
$123,884 |
$56,909 |
| *Average Cost |
Which is better, a prepaid tuition plan or a college savings plan?
A prepaid tuition plan offers a conservative approach to investing for college, and can be the right program for students planning to attend a state college. And, if tuition costs increase, you win-the number of credit hours you purchased remains the same, regardless of any changes in college costs.
The NextStudent Scholar’sEdge™ savings plan is more flexible, allowing you to save for any attendance at any college. The amount you invest, plus the accumulated return on your investment, may well exceed college costs so you’ll come out ahead.
Both plans are tax-deferred, and allow tax-free withdrawals for education-related expenses.
If savings may impact my child’s federal aid eligibility, why should I save at all?
Whether you save or not, you will be expected to contribute to your child’s education to the extent possible. If you haven’t put away any money at all, then you may have to take out loans either as part of your financial aid package or to pay part or all of your Expected Family Contribution ... or both. Even though you and your child may be eligible for low-cost loans, any type of loan means paying interest whereas saving money means getting interest.
How much will I be expected to contribute toward my child’s education?
To meet the cost of attendance, each school looks to the students and parents to make an Expected Family Contribution (EFC). The EFC is based on your family's ability to pay, and is determined by need analysis derived from the information reported on your child’s Free Application for Federal Student Aid. The EFC normally includes both a student's share and the parents' share, both of which take into account income and assets. The total EFC is calculated using a standard formula established by law so that, regardless of the college your child attends, your EFC will be the same.
How will contributing to a 529 impact financial aid eligibility?
Although your savings will be considered in the EFC calculation, income is a bigger factor than assets. However, both types of 529 plans will impact your EFC.
A college savings plan, such as the NextStudent Scholar’sEdge plan, is considered the parents’ assets and is factored into the EFC at 5.6% so that a portion of the assets are considered in the financial aid calculation. A prepaid tuition plan, on the other hand, is considered to be the student’s asset, and reduces financial aid dollar-for-dollar.
Who should save—me or my child?
While there are potential tax benefits to saving in your child’s name, there are also potential financial aid implications. Parent assets are factored into the EFC at a low rate-5.6%, while student assets are assessed at 35% of assets and 50% of after-tax income over $1,750.
Who should borrow—me or my child?
You should definitely investigate loans for your student first, such as the Federal Stafford Loan. These are the lowest-cost aid available and offer significant benefits such as flexible repayment, deferment and forbearance, and consolidation.
If Stafford loans aren’t enough to cover the funding gap, Federal PLUS Loans can help. These loans are available to parents of undergraduate students, and are among the best financial options for most families.
How is a Federal PLUS Loan different from a Stafford Loan?
Both loans are federally guaranteed, but the Federal PLUS Loan is made to the parents of dependent undergraduates, while the Stafford Loan is made directly to the student in his or her name. Other differences are:
Interest rates: The interest rate on a Stafford Loan is generally among the lowest available (currently 3.42%). The Federal PLUS Loan interest rate is slightly higher (4.22% as of 07/01/03), though still quite low compared to other types of consumer financing. What’s more, you can take advantage of rate discounts for automatic-debit and consecutive on-time payments to lower your rate by as much as 2.25%.
Repayment: Repayment on Federal PLUS Loans begins within 60 days of disbursement whereas Stafford Loan repayment is deferred until after graduation. Many parents choose to have their children make the payments on their Federal PLUS Loans, although the parents are ultimately responsible for the debt.
Loan Amounts: Parents can borrow up to 100% of college education costs, including room and board, books and tuition, with a Federal PLUS. Federal Stafford Loan borrowing, on the other hand, is capped at $2,625 and $3,500 for dependent first- and second-year undergraduates, respectively and $5,500 for dependent third- and fourth-year students.
Is there a credit check required for a Federal PLUS Loan?
Yes, parents must pass federal guidelines for creditworthiness. These guidelines are generally less stringent than for other types of consumer credit, such as home equity loans and credit cards. Further, there are no collateral requirements and Federal PLUS Loans are not based on financial need, so even families with high income can qualify.
What if I’m not approved for a PLUS Loan?
A student whose parent(s) have been turned down for a PLUS Loan may be eligible to borrow additional funds through the Unsubsidized Stafford Loan Program, subject to the school's approval.
How much does a Federal PLUS Loan cost?
The Federal PLUS Loan has a 3% government origination fee and a 1% guarantee fee, which is normally waived. The origination fee is taken out of the proceeds of the loan, so there is no up-front money required to obtain the loan.
How are Federal PLUS Loan funds disbursed?
The school’s Financial Aid Office will distribute the funds in scheduled payments over the course of the academic year. All federal loans have at least two disbursements, typically one for each school term. At most schools, the last disbursement will take place in January, and the repayment will normally start between February and March.
Are there any prepayment penalties on the Federal PLUS Loan?
No.
Need more answers?
» NextStudent.com frequently asked questions list
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