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That Free Financial Aid Seminar May be Just a Worthless Sales Pitch

Mark Kantrowitz

November 18, 2011

Error: The interest rate on the PLUS loan depends on your credit history.

The interest rate on the PLUS loan does not depend on the borrower’s credit score or credit history. The interest rate on the PLUS loan is fixed at 7.9%.

Eligibility for the PLUS loan, however, requires the borrower to not have an adverse credit history. An adverse credit history is defined as having a derogatory event in the last five years (e.g., bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment or default determination) or a current delinquency on any debt of 90 or more days.

Error: The interest rate on the PLUS loan is capped at 6.8%. Some banks do better.

The interest rate on the PLUS loan is capped at 9.0%. This cap was rendered moot by the switch from variable rates to fixed rates on new PLUS loans made on or after July 1, 2006. The fixed interest rate on the PLUS loan is 7.9%.

6.8% is the fixed interest rate on the unsubsidized Stafford loan.

Since July 1, 2010, all new federal education loans have been made through the Direct Loan program. Banks are no longer involved in making new federal education loans.

Error: The most you can borrow through the PLUS loan is $2,000 after all other aid.

The annual loan limit on the PLUS loan is the full cost of attendance minus other aid received. There is no specific dollar limit on the PLUS loan.

The speaker is blending the PLUS loan program with the Stafford loan program. The Ensuring Continued Access to Student Loans Act of 2008 increased the Stafford loan limits for undergraduate students by $2,000 while keeping the loan limits for subsidized Stafford loans unchanged. The unsubsidized Stafford loan limit is the same as the overall Stafford loan limit minus any amounts received as a subsidized Stafford loan. Since the overall Stafford loan limits are $2,000 higher than the subsidized Stafford loan limits, this means that all undergraduate students can borrow at least $2,000 through the unsubsidized Stafford loan program. Dependent students who do not qualify for subsidized Stafford loans can borrow $5,500 to $7,500 per year, depending on year in school. Independent students who do not qualify for subsidized Stafford loans can borrow $9,500 to $12,500 per year, depending on year in school.

Error: You can also get an Academic Competitiveness Grant of $1,500 and a National SMART Grant of $2,000.

The Academic Competitiveness Grant and the National SMART Grant programs were funded from 2006-07 through 2010-11 and are no longer available. The award amounts under the Academic Competitiveness Grant were $750 during the first year of study and $1,300 during the second year of study. The award amounts under the National SMART Grant were $4,000 per year during the third and fourth years of study.


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