When college costs exceed family resources plus financial aid, families can turn to Federal PLUS loans to fill this funding gap. Parents of dependent undergraduate students attending an eligible college, university, or trade school may take out a PLUS loan to fund their child's entire cost of attendance, minus any other financial aid. Parents may qualify for a PLUS loan regardless of their income or financial assets.

PLUS loans may be used to pay authorized education expenses, including tuition, fees, room and board, supplies, and equipment—often including personal computers—as well as transportation and commuting costs.

There are several other advantages to PLUS loans:

• No set loan limits. Parents can borrow amounts up to the student's total cost of attendance, less any other financial aid.
• Affordable interest rates. Effective for PLUS loans disbursed on or after July 1, 2006, PLUS-loan interest rates are fixed at 8.5 percent. On PLUS loans disbursed prior to July 1, 2006, interest rates are variable and are adjusted annually on July 1. PLUS borrowers may be charged as much as 4 percent of the loan amount in up-front fees.
• Flexible repayment options. PLUS borrowers have several repayment options. PLUS borrowers also may qualify for deferment or forbearance to temporarily postpone or reduce their monthly loan payments.
• Potential tax benefits. Interest paid on a PLUS loan during the repayment period may qualify for a federal income-tax deduction. The maximum education-loan-interest deduction is $2,500. Income limits and other conditions apply to the education-loan-interest deduction. For additional information, taxpayers can order Internal Revenue Service Publication 970, "Tax Benefits for Higher Education."
• Easy access. PLUS-loan information and applications are available through college financial-aid offices, private lenders, and student-loan guarantors. PLUS-loan borrowers must pass an adverse-credit check, but many lenders offer PLUS pre-qualification services to determine in advance if PLUS-loan applicants can pass the credit check. Some education-loan providers offer online loan applications and loan-by-phone services. The loan-approval process, including credit review, may take as little as a few seconds.

Parents who are considering borrowing through the PLUS-loan program should ask the following questions:

Have I exhausted other sources of financial aid? Before applying for a PLUS loan, parents should make sure they have thoroughly researched all forms of financial aid, especially grants and scholarships. Parents also should explore Federal Stafford loans before borrowing PLUS loans. See the section on  "Alternatives to PLUS loans." To provide the optimum financial-aid package, college financial-aid administrators encourage families of college-bound students to complete and file the Free Application for Federal Student Aid. The financial-aid office, as well as the local library and Internet scholarship-search services, are good sources of information on grants and scholarships. If parents decide to take out a loan for college, the campus financial-aid staff can help determine how much they should borrow and answer questions about the loan-application process.

What if I don't pass the credit check?
To qualify for a PLUS loan, parents must pass a credit evaluation. Unlike credit checks for other types of borrowing, the PLUS credit check merely determines if the borrower has an "adverse credit history." Indications of adverse credit include being 90 days or more past due on the repayment of a debt, having been in default or foreclosure on a loan, or having had a bankruptcy discharge or write-off of a federal education debt during the past five years. Lenders are permitted to establish more stringent criteria than these for adverse credit. Parents who fail the PLUS credit check have the following options:

• They still may obtain a PLUS loan if a friend or family member who can pass the credit check agrees to endorse the loan application and assume the debt if the borrower fails to repay the loan.

• A lender may still approve a PLUS loan if parents can demonstrate extenuating circumstances, such as updated credit information showing that they have brought their accounts up to date or have made satisfactory arrangements to repay their debts.

• When parents are denied a PLUS loan because of adverse credit, the dependent student qualifies to borrow additional amounts in unsubsidized Federal Stafford-loans.

When do my PLUS-loan payments begin and when does interest start accruing on my loan?
The first PLUS loan payment generally is due 60 days after the loan is disbursed, but parent-borrowers may defer principal payments on their PLUS loans while they or the dependent undergraduate student for whose benefit the loan was issued ceases being enrolled at least half time and for six months after that enrollment. For more information, see the section on "Deferment, forbearance and cancellation." Interest begins accumulating on PLUS loans as soon as the loans are disbursed.

Parent or child, who pays?
Many parents who take out PLUS loans establish arrangements with their children to repay their PLUS loan. If their child fails to make the loan payments, however, the parent who signed for the PLUS loan is legally obligated to repay the debt.

Alternatives to PLUS loans

• Federal Stafford loans. These federal student loans are usually the least-expensive loan option. Depending on their year in college, dependent undergraduate students may borrow amounts ranging from $5,500 to $7,500 a year. The interest rate on Stafford loans disbursed since July 1, 2006, is fixed at 6.8 percent. Fixed rates on new subsidized Stafford loans first disbursed between July 1, 2009, and June 30, 2010, to undergraduates are reduced to 5.6 percent, and will be further reduced in annual increments to 3.4 percent, beginning July 1, 2011. Repayment is not required until six months after the student leaves school. Depending on a family's eligibility for financial aid, the student may qualify for a subsidized Stafford loan, on which the federal government pays the interest while the student attends college, during the six-month post-school grace period, and during periods of authorized deferment. Unsubsidized Stafford loans are available without regard to financial need, but there is no federal interest subsidy. Interest on Stafford loans may qualify for the federal education-loan-interest tax deduction.
• Private, institutional and state education loans. Many lenders, a number of colleges and universities, and several states offer education-loan programs to supplement federal education loans. Interest rates, fees and repayment terms vary widely. Parents should consult with the financial-aid staff of their child's college for more information. Interest on these loans may qualify for the federal education-loan-interest deduction.
• Home-equity loans. Parents who own their home may be able to borrow against the equity value that has accumulated over the years to fund higher-education expenses. Interest rates and repayment terms vary. Home-equity borrowers also may incur administrative costs, such as a home-appraisal fee. On certain home-equity loans, interest may be tax-deductible—if taxpayers itemize deductions on their federal tax returns. Of course, borrowers who fail to make payments on a home-equity loan risk losing their house.

About the PLUS Loan Application and Master Promissory Note
Parents may take out multiple PLUS loans by signing one PLUS MPN. The PLUS MPN is valid only for loans made for a single dependent student, however. Parents must use a separate PLUS MPN for each dependent student for whom they obtain a PLUS loan.

The PLUS MPN is valid for new loans even if the student changes schools or the loan is obtained with the support of another guarantor. If the parent changes lenders, however, a new note must be completed. At any time, the school, borrower or lender may choose to obtain a new PLUS MPN.

When using a PLUS MPN, if the parent obtains an endorser for a PLUS loan, the endorsement applies only to that particular loan. If the parent obtains new loans subsequent to the first endorsed loan, the parent must sign a new MPN and, if applicable, obtain an endorser signature for the subsequent loan.

Deferment, forbearance and cancellation
Parent PLUS loan borrowers can defer repayment while they are enrolled at least half time. On PLUS loans first disbursed on or after July 1, 2008, parents-borrowers also can request deferred payments while the dependent student is enrolled at least half time, and for six months after the parent-borrower or student no longer is enrolled at least half time. PLUS loan borrowers also qualify to defer their loan payments if they are unemployed, encounter specified economic hardships or are on active duty in the military.

PLUS-loan borrowers who don't meet any of these criteria, but who still are having difficulty making their loan payments, may appeal to their lender for forbearance to temporarily reduce or delay their loan payments. In either case, interest will continue to accrue during the period of deferment or forbearance. Learn more about deferment and forbearance.

PLUS-loan -repayment obligations can be cancelled if the borrower (and in the case of a parent-borrower, the dependent student on whose behalf the loan was issued) dies, the borrower meets federal criteria for total and permanent disability, the borrower proves undue hardship before a bankruptcy court and in certain other circumstances.