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 STUDENT’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. |