Are you a ‘dependent’ undergraduate student? If your answer to that last question is a yes, have you heard of Direct PLUS Loans? Parents of dependent undergraduate students use Direct PLUS Loans to help pay for college, university, or career school. Direct PLUS Loans are federal loans that are also called parent PLUS loans. It must be noted that parent PLUS loans are made to the parent only.
To be eligible for a Parent PLUS loan, you must be a biological, adoptive, or stepparent of a dependent undergraduate student who is enrolled, at least, part-time at a college, university, or career school and meet the general eligibility requirement for federal student aid.
[ ‘A dependent undergraduate student refers to a student who reports information from both themselves and their parents when that student files their FAFSA, or ‘Free Application for Federal Student Aid.’ ]
In addition, to be eligible for a Parent PLUS loan, you cannot have an adverse credit history. Adverse credit history is constituted by the following:
- A total outstanding balance greater than $2,085 that is 90 or more days delinquent as of the date of the credit report.
- A total outstanding balance greater than $2,085 that has been placed in collection or charged-off during the two years preceding the date of the credit report.
- Default determination, or when you fail to make required payments on a debt, whether of interest or principal, during the five years preceding the date of the credit report
- Bankruptcy, Repossession, Wage Garnishment, Tax Lien, and Foreclosure discharge during the five years preceding the date of the credit report.
- Charge-off/write-off of a federal student aid debt during the five years preceding the date of the credit report. A charge-off refers to a creditor who has forgiven your debt and a write-off is when you are severely past due on your account, and, as a result, you are not expected to pay.
The maximum PLUS loan amount you can borrow is your child’s cost of attendance at the institution minus the other financial assistance your child receives. Your child’s institution determines the Cost of Attendance. In addition, you are expected to begin making payments after the loan is fully disbursed, however, you may request a deferment through which you will not need to make payments while your child is enrolled at least part-time for an additional six months after your child graduates, leaves school, or drops below part-time enrollment.
Parent PLUS loans have a fixed interest rate, and you must pay an origination fee for each loan. Because Parent PLUS loans are not subsidized, interest accumulates once the loan is disbursed, and interest will continue to grow regarding deferment. Therefore, parent PLUS loans charge higher interest rates compared to other federal student loans, but parent PLUS loans also allow a parent to borrow more money from the federal government compared to other federal student loans. However, if you are rejected for the Parent PLUS loan, the student may be eligible for more student loans at a lower interest rate. The only difference is it may not be for as much money, and the student could still have to find other methods for filling the remaining financial aid gaps.