Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Federal Family Education Loan Programs - Federal PLUS Loans

AwardYear: 1995-1996
EnterChapterNo: 10
EnterChapterTitle: Federal Family Education Loan Programs
SectionNumber: 4
SectionTitle: Federal PLUS Loans
PageNumbers: 43-50


[[OBRA '93]]
As explained in Section Three, the Omnibus Budget Reconciliation
Act of 1993 eliminated the Supplemental Loans for Students (SLS)
program (formerly covered in this section) as a separate program.
Effective for periods of enrollment beginning on or after July 1,
1994, the SLS program has been merged into the unsubsidized
Stafford Loan program. SLS loans will be mentioned in this
section only as they affect PLUS loan procedures. For detailed
information on SLS loans made before July 1, 1994, please refer
to Section Four of The Federal Student Financial Aid Handbook,
1993-94.

Forbearance, cancellation, default, and other provisions common
to all FFEL programs, as well as to the Federal PLUS program, are
covered in Section Six.


LOAN LIMITS

Federal PLUS loans are limited to parent borrowers. A parent, as
defined in the General Provisions regulations, Section 668.2, is
a person's natural or adoptive mother or father, or legal
guardian (which may include a stepparent, as long as the
stepparent meets the legal definition of an adoptive parent or
legal guardian). As mentioned under "Borrower eligibility" in
Section One, effective July 1, 1995 a parent with an adverse
credit history may receive a loan by securing an endorser who
does not have an adverse credit history.

[[Adverse credit history provisions for PLUS borrowers]]
As stated at the end of page 10-3, regulatory criteria for
determining adverse credit history has been established by the
Department. The provision that enables a parent with an adverse
credit history to secure an endorser without adverse credit was
published November 29, 1994. Definition of adverse credit
history was provided in a final regulation published June 28,
1994.

[[Limits for PLUS loans made before 7/1/93]]
- FOR PLUS LOANS DISBURSED BEFORE JULY 1, 1993, a
parent may borrow up to $4,000 per academic year on behalf of
each dependent undergraduate student, to a maximum
outstanding debt of $20,000 per student. The student's parents
may borrow jointly or separately for the student. If they
borrow separately, the loan limits on behalf of dependent
students apply to the total of both loans, not to each loan
individually. If the parents borrow jointly, both are liable for
repayment of the loan as endorsers.

These loan limits DO NOT include amounts borrowed by the
student under the Federal Stafford Loan or Federal SLS
programs. In case of separation or divorce of a student's
parents, either parent may borrow under PLUS—borrowing is
not restricted to the parent who filled out the financial
aid and/or loan application.

In addition to the above limits, no borrower may receive a
loan for more than the student's estimated cost of
attendance minus other financial aid awarded during the
period of enrollment.

[[PLUS loans disbursed after 7/1/93 limited ony by COA
minus other aid]]
- FOR PLUS LOANS FOR WHICH THE FIRST
DISBURSEMENT IS MADE ON OR AFTER JULY 1, 1993,
annual and aggregate loan limits have been repealed.
However, a PLUS loan may not exceed the student's estimated
cost of attendance (COA) minus other financial aid awarded
during the period of enrollment.

[[HETA '93]]
[[Unsubsidized Stafford may be permitted after PLUS denial]]
If, due to circumstances such as an adverse credit history, a
dependent undergraduate student's parents are unable to borrow a
PLUS, under the Technical Amendments of 1993 the student will be
allowed the loan limits applicable to independent students under
the unsubsidized Stafford Loan Program. You must put in writing
your reason(s) for making the decision, provide supporting
documentation, such as a letter of denial of a PLUS loan from a
lender, and keep the information in the student's file.


INTEREST RATES

[[PLUS interest rates are variable; adjusted each year]]
PLUS loans for which the first disbursement is made on or after
July 1, 1987 through September 30, 1992 have a VARIABLE
interest rate, to be determined on June 1 of each year according to a
prescribed formula, and effective for the following July 1
through June 30. The interest rate for these PLUS loans cannot
exceed 12 percent, and the interest rate for these PLUS loans for
the period from July 1, 1993 through June 30, 1994 was 6.79
percent. For the period July 1, 1994 through July 1, 1995, the
rate was 8.53 percent.

PLUS loans first disbursed on or after October 1, 1992 through
June 30, 1994 also have a variable interest rate, determined on
June 1 of each year. However, the interest rate for these loans
may not exceed 10 percent. The variable interest rate for these
PLUS loans for the period July 1, 1993 through June 30, 1994 was
6.64 percent. For the period July 1, 1994 through July 1, 1995,
the rate was 8.38 percent.

The variable interest rate for a PLUS loan disbursed on or after
July 1, 1994 but prior to July 1, 1998 will not exceed 9 percent.
The rate will be determined on June 1 of each year and be
effective for the following July 1 through June 30. It is
determined by the bond equivalent rate of the 52-week Treasury
Bills auctioned at the final auction held prior to each June 1,
plus 3.1 percent. For the period July 1, 1994 through July 1,
1995, the rate was 8.38 percent.

Parents with PLUS loans should understand that annual adjustments
in interest rates may alter their monthly payments. Or, the
lender may keep the monthly payment amount the same, but
increase (or decrease) the number of payments required, to reflect
the increase (or decrease) in the variable interest rate.

[[No interest subsidy for PLUS]]
There is no interest subsidy for PLUS borrowers; the borrower is
responsible for all interest that accrues on the loan while the
student is in school and during periods of deferment, according
to the terms of the repayment schedule.


ADDITIONAL COSTS OF BORROWING

[[Insurance premium reduced to 1%]]
For loans first disbursed on or after July 1, 1994 for periods of
enrollment beginning on or after that date, the maximum insurance
premium that a guaranty agency may charge the lender of a PLUS is
a one-time fee not to exceed 1 percent of the principal amount of
the loan. (Formerly, a guaranty agency could charge a lender a
fee not to exceed 3 percent of the loan principal.) If the
lender passes this charge on to the borrower, the fee must be
deducted proportionately from each disbursement of the loan.

[[Origination fee reduced to 3%]]
For loans made on or after October 1, 1992 through June 30, 1994,
PLUS borrowers will be charged an origination fee of 5 percent of
loan principal, to be deducted proportionately from each
disbursement of the loan. For loans first disbursed on or after
July 1, 1994 for periods of enrollment beginning on or after that
date, the origination fee has been reduced from 5 to 3 percent of
loan principal. Lenders must deduct (or collect) the origination
fee proportionately from each disbursement of the loan
proceeds.


REPAYMENT

[[Effective 10/1/93, PLUS loans must be multiply disbursed]]
The repayment period for PLUS loan borrowers begins on the date
the loan is disbursed, or if the loan is disbursed in more than
one installment, on the date the last disbursement is made.
Please note that multiple disbursement is required for PLUS loans
first disbursed on or after October 1, 1993. More information on
PLUS loan disbursement is found under "Requirements for
Disbursement" in Section Eight. The repayment period for PLUS
borrowers ends no later than 10 years after repayment begins,
excluding periods of deferment or forbearance.

For PLUS borrowers the first payment of interest and principal is
due within 60 days after the loan is fully disbursed, unless one
of the deferment conditions described below applies.

[[Capitalization of interest during deferment]]
DEFERMENT OF PLUS LOANS IS FOR PRINCIPAL ONLY; the
borrower must pay all interest that accrues on the loan after
disbursement according to the terms of the repayment schedule, sent
to the borrower when repayment begins. However, a lender may
agree to capitalize the interest (add it to loan principal) when
repayment of the principal begins or resumes. (See the explanation
of capitalization in Section Six.) Interest that accrues during a
deferment may be capitalized no more frequently than quarterly.
Procedures for capitalization of interest under different
deferments may vary. Borrowers should be instructed to read
their promissory note and check with their lender or guaranty
agency for details on capitalization of interest. If a borrower
agrees to pay interest during deferment, but fails to do so, the
borrower will be considered delinquent. The minimum annual
payment of the borrower's total of Stafford, SLS, and PLUS loans
is $600.

[[Flexible repayment (but not income-sensitive) offered new
PLUS borrowers]]
There is no prepayment penalty for PLUS loans. Lenders may agree
to a standard or graduated BUT NOT AN INCOME-SENSITIVE
repayment schedule for PLUS loans, as long as minimum annual
payment and maximum time periods for loan repayment are met.
The Department encourages lenders to provide borrowers such
flexible repayment schedules as long as payments at least cover
interest charges. If a graduated repayment schedule is established,
however, no single payment can be more than three times greater
than any other payment. Lenders are REQUIRED to offer the
option of standard or graduated loan repayments to new borrowers.
A new borrower for this purpose is one who, as of July 1, 1993, has
no outstanding balance on an FFEL loan on the date the loan is
obtained, if the loan is obtained on or after July 1, 1993.

On June 29, 1994, the Department issued a regulation providing
detailed guidance to lenders concerning the standard, graduated,
and income-sensitive repayment plans. Please refer to pages
10-29 to 10-30 of Section Two for additional information.

[[Remind students to keep lenders informed!]]
If, after obtaining a PLUS, the student for whom the parent
borrowed enrolls less than half time, or does not enroll at all
during the period for which the loan was intended, the entire
amount is immediately due the lender. As with Stafford Loans, IT
IS THE STUDENTÂ’S RESPONSIBILITY TO NOTIFY THE
LENDER OF THE DATE ON WHICH HE OR SHE CEASES TO
BE ENROLLED AT A PARTICIPATING SCHOOL AT LEAST
HALF TIME. The school also must promptly inform
the lender when the student for whom the parent borrowed drops
below half-time status. (See the information on establishing a
withdrawal date under "Repayment" in Section Two.)


DEFERMENT

As with Stafford Loans, PLUS loan borrowers can postpone
repayment of loans under certain conditions, but as mentioned
earlier, the borrower is responsible for paying the interest on
PLUS loans during periods of deferment. The borrower must
request a deferment either verbally, or more often, on a form
provided by the lender. Because, as noted above, the repayment
period on a PLUS begins on the date of last disbursement, a
deferment covering such a loan would also begin on the date of
last disbursement of the loan.

With the permission of the guaranty agency, a PLUS loan
application certified by the school may be considered by a lender
as a request for deferment of principal while the student for
whom the parent borrowed is in school, IF THERE IS A CLEAR
STATEMENT ON THE APPLICATION THAT THE BORROWER
IS REQUESTING A DEFERMENT BY CHECKING A BOX OR
BY SIGNING THE APPLICATION.

[[Deferments for PLUS borrowers with loans outstanding]]
The following deferments of repayment apply to PLUS loan
borrowers with loans outstanding whose loans are disbursed before
July 1, 1993, and to borrowers with FFEL loans outstanding whose
loans are disbursed on or after July 1, 1993-

- full-time study by the parent borrower at an eligible
school. (See Section Two under "Deferment" for the
definition of an eligible school for the purpose of these
deferments.);

- study by the parent borrower in an eligible graduate
fellowship program, including a recognized graduate
international fellowship program at a foreign university;

- study by the parent borrower in a rehabilitation training
program for disabled individuals;

- up to three years during which the parent borrower is
temporarily totally disabled, or during which the parent
borrower is unable to work because he or she is caring for
a spouse or other dependent who is temporarily totally
disabled;

- periods of unemployment totalling up to two years, if
during those periods the parent borrower is seeking but
unable to find full-time employment; or

- full-time study by a dependent student for whom the parent
borrowed a PLUS loan(as long as the student is still
dependent and meets the conditions for an in-school
deferment) -

- at an eligible school. Deferment is also permitted
for a dependent student's half-time study, if the
student is a new borrower and obtains a Stafford Loan
for the same enrollment period.

- at an institution of higher education or a vocational
school which is operated by an agency of the federal
government.

- in an eligible graduate fellowship program, or in an
approved rehabilitation training program for the
disabled.

The following additional deferment of repayment for a PLUS loan
applies only to new borrowers. For this deferment, a new
borrower is one who, on the date the promissory note is signed,
has no outstanding balance on an FFEL Program loan made before
July 1, 1987 for a period of enrollment beginning before July 1,
1987. The deferment is authorized for -

- periods when the parent borrower is in school at least
half time, if the parent borrower has obtained a Stafford
Loan (subsidized or unsubsidized) for the same enrollment
period.

[[Deferments for new borrowers with loans first disbursed on/after 7/1/93]]
The following deferments of repayment apply to borrowers of FFEL
Program loans who are new borrowers (meaning a borrower with no
outstanding balance on any FFEL Program loan) on the date the
loan is applied for, and whose first disbursement of the loan is
made on or after July 1, 1993 -

- at least half-time study at an eligible school;

- study in an eligible graduate fellowship program,
including study outside the United States;

- study in an approved rehabilitation training program for
the disabled;

- up to three years during periods in which the borrower is
seeking and unable to find full-time employment;

[[New definition of economic hardship]]
- up to three years during periods which the lender
determines will cause the borrower economic hardship.
Economic hardship exists when the borrower is receiving
payment under a federal or state public assistance
program, or is working full time and is earning a total
monthly gross income that does not exceed the greater of:
a) the minimum wage or b) the poverty line for a family of
two, as determined in Section 673(2) of the Community
Service Block Grant Act.

The borrower may instead meet other criteria used to
determine economic hardship. Specifically, the borrower
may qualify if he or she is working full time and has a
federal educational debt burden (including defaulted
loans) that is at least 20 percent of the borrower's total
monthly gross income; this income is based on full- or
part- time employment and revenue received from all other
sources. The borrower's income, minus the educational
debt burden, must be less than 220 percent of the total
monthly gross amount associated with minimum wage rate
work or earnings equal to 100 percent of the poverty line
for a family of two.

In addition, a borrower may receive an economic hardship
deferment under FFEL if the borrower has been granted an
economic hardship deferment under either the Direct Loan,
or the Federal Perkins Loan, Program, for the s ame period
of time for which the FFEL economic hardship deferment is
requested.

Other criteria for this deferment are described in the
November 29, 1994 FFELP Final Rule.

Please note that an endorser on a Federal PLUS or Federal
Consolidation Loan may receive a deferment if both endorsers are
simultaneously eligible for the same, or different, deferments.