The Parent Loan for Undergraduate Students (PLUS) loan is meant to be a loan that tops off a family’s college funding tank. In other words, this loan is meant to make up the difference between what college actually costs and what other financial aid has already been awarded. It has no preset limit on lifetime borrowing.

Unlike Stafford and Perkins loans, PLUS loans for undergraduate students are taken out by the parent of a dependent student; parents of independent students are not permitted to apply for PLUS loans. To make matters slightly more confusing, these loans that were designed for parents have also now been made available to graduate students who are not financially dependent on a parent.

As of the 2010-2011 school year, two possible interest rates are available on federal PLUS loans. Students that borrow them under the Direct program pay an annual rate of 7.9 percent, whereas students who borrow under the Federal Family Education Loan Program (FFELP) pay an annual rate of 8.5 percent. There is no such thing as a subsidized PLUS loan, with all borrowers paying one of these two rates, regardless of their financial need. PLUS loans are also subject to a 4 percent upfront fee (3 percent origination fee + 1 percent default fee), which is typically added to the balance of the loan.

As with Stafford and Perkins loans, PLUS loans are available only to U.S. citizens and residents attending school at least half-time. Unlike these other loans, though, PLUS loans are subject to a credit check and are regularly declined for borrowers with poor credit history.