How College Financial Aid Works

Parent Loans

A growing number of parent loans are available nationally. The federally supported Parent Loan to Undergraduate Students (PLUS) offers low interest (not interest-subsidized) loans for which repayment begins 60 days after funds are disbursed. Parents can apply for PLUS loans by completing either a PLUS Loan application or a Direct PLUS Loan application (if your school participates in the federal Direct Loan program).

Study Abroad
Studying abroad can be one of the most important experiences a student can enjoy as an undergraduate. At most institutions, need-based aid and merit scholarships may be applied to study-abroad costs. Like campus financial aid, need-based study-abroad assistance will be based on family ability to pay and the cost of education. Although standard expenses (room and board, tuition, etc.) will be included in a study-abroad budget, it's wise to double check with your campus financial aid office.

PLUS loans are designed to fill in the gap between student financial aid awards and the total cost of attendance. For that reason, the amount of a PLUS loan cannot exceed the price difference between cost of attendance and the amount of financial aid already received [source: Federal Student Aid]. For example, if your college costs $40,000 a year and you already receive $30,000 in aid, the PLUS loan cannot exceed $10,000.

There are also many private parental loans offered under a variety of terms and interest rates, some allowing repayment over as long as 20 years.

Almost all parent loans require some type of credit check. The PLUS loan credit check is the most liberal, requiring only that parents have had no credit problems within 60 days of application. The credit check for private parent loans is more stringent and generally requires that the applicant's debt-to-income ratio meet a specified standard.

The good news about most parent loans is that the applicant can borrow up to their student's cost of education minus any available financial aid. Parent loans should be viewed as cash flow loans or as a way to close the gap between the cost of the school of choice and those other resources your family has identified.

Now that you know all about loans, let's learn all about grants on the next page.