Not all PLUS loans are created equal.
Basically, there are two varieties, Parent PLUS loans, and graduate PLUS loans.
Parent PLUS loans are the older of the two. (The acronym originally stood for “Parent Loan for Undergraduate Students”). These are loans made directly by federal government to parents of undergraduate students.
Graduate PLUS loans are made directly by Uncle Sam to graduate students (who are typically young adults of legal age).
Despite the similar names, there are key differences between the two.
When a child finishes with undergraduate studies, make no mistake, it is the parent who gets the Parent PLUS loan bill. The student is never obligated to contribute to paying off this debt. It’s nice if they say they are going to try, but that “promise” is unenforceable. Also, there are never any co-signers on a Parent PLUS loan. If you are talking about a loan co-signed by a student and her parent, 99% of the time it is a private loan, not a PLUS loan.
Graduate PLUS loans, on the other hand, are the responsibility of the student once her education is completed. Again, there are no co-signers, and the parent has no legal responsibility to help out.
When it comes to income based repayment plans there is a critical difference between the two types of PLUS loans: The Parent PLUS variety is eligible for only one of the repayment programs, and that is Income Contingent Repayment (ICR). ICR is the oldest and least flexible of the plans, and usually has the highest monthly payments. But at least there is a little help.
Graduate PLUS loans, however, are eligible for the whole plate of relief offered by Uncle Sam.
So, for instance, graduate PLUS loan can go in to the new REPAYE program, where the monthly payment is based on only 10% of adjusted gross income, and loan forgiveness is available after 20 years.