Federal Student Loans to Parents

Usually these are PLUS loans (formerly standing for "Parent Loan for Undergraduate Students"). Unlike loans made to students, parents can borrow much more, usually enough to cover the remainder of the costs student financial aid does not cover. Interest accrues during the time the student is in school. No payments are required until the student is no longer in school, although parents may start repayment ahead of time if they want, thus saving on interest.

Contrary to a misconception, the parents are responsible for repayment on these loans, not the student. Loans to parents are not a 'cosigner' loan with the student having equal accountability. The parents have signed the master promissory note to repay the loan and, if they do not repay the loan, their credit rating will suffer. Also, parents are advised to consider what their monthly payments will be after borrowing for four years at this rate (initial loan documents will give the repayment schedule as if only one year of loans was taken out). What sounds like a "manageable" debt load of (for example) $200 a month from freshman year loans can mushroom to a much more daunting $800 a month by the time four years have been funded through loans. Borrowing is not free, and the more borrowed, the more expensive it is.

Under new legislation, graduate students are eligible to receive PLUS loans in their own names. These Graduate PLUS loans have the same interest rates and terms of Parent PLUS loans.

The current interest rate on these loans, set by the United States Congress in 2006, is 8.5%.