Direct PLUS Loans are federal loans that graduate or professional students and parents of dependent undergraduate students can use to help pay for college or career school (commonly referred to as a “parent PLUS” loan when made to a parent). PLUS loans are intended to help pay for education expenses not covered by other financial aid.
The U.S. Department of Education makes Direct PLUS Loans to eligible parents and graduate or professional students through schools participating in the Direct Loan Program.
To qualify for a PLUS loan, the borrower must qualify through a credit check. A borrower with poor credit history may still qualify if other requirements are met including a co-signor or documenting, to the satisfaction of the Department of Education, that there are extenuating circumstances explaining the adverse credit history.
Under PLUS Loans, the Department of Education is the lender. While PLUS Loans are in good standing (not in default), they are serviced by a federal loan servicer. If in default, federal PLUS Loans are transferred to a collection agency for collection.
The maximum PLUS loan that can be borrowed equals the “cost of attendance” (determined by the school) minus any other financial aid received. The “cost of attendance” (also referred to a as “COA”) includes “tuition and fees; on-campus room and board (or a housing and food allowance for off-campus students); and allowances for books, supplies, transportation, loan fees, and, if applicable, dependent care, costs related to a disability, and miscellaneous expenses, including an allowance for the rental or purchase of a personal computer, costs related to disability, or costs for eligible study-abroad programs.”
Direct PLUS loans have a fixed rate of interest and are not subsidized, which means that interest accrues while the student is enrolled in school. Borrowers are charged a fee to process a Direct PLUS Loan, called an “origination fee”. An origination fee is deducted from the loan disbursement before the borrower or the school receives the funds.
There are two types of Direct PLUS loans: the “Grad PLUS” loan and the “Parent PLUS” loan.
Grad PLUS Loans
Grad PLUS loans allow graduate and professional students to borrow money to pay for their own education. Graduate students can borrow Grad PLUS loans to cover any costs not already covered by other financial aid or grants, up to the full cost of attendance.
Grad PLUS loans are eligible for income-based repayment (IBR), pay-as-you-earn repayment (PAYER) and income-contingent repayment (ICR).
Parent PLUS Loans
Parent PLUS loans allow parents of dependent students to borrow money to cover any costs not already covered by the student’s financial aid package, up to the full cost of attendance. The program does not set a cumulative limit to how much parents may borrow. Parent PLUS loans are the financial responsibility of the parents, not the student.
Parent PLUS loans have a fixed rate of interest and are not subsidized, which means that interest accrues while the student is enrolled in school. The borrower is charged an origination fee which is deducted from the loan disbursement before the borrower or the school receives the funds.
Parent PLUS loans have no “grace period”. Parent PLUS loan repayment begins as soon as the borrower or the school receives the loan funds. However, parents may be able to delay making payments while their child is in school or for an additional six months after their child graduates, leaves school, or drops below half-time enrollment.
Parent PLUS loans are not eligible for income-based repayment. They are, however, eligible for income-contingent repayment if they are included in a Federal Direct Consolidation Loan and the borrower entered repayment on or after July 1, 2006.
Parent PLUS loans are eligible for the standard 10-year repayment, graduated repayment and extended repayment. Graduated repayment starts off with monthly payments at or slightly above an interest-only payment and increases the monthly payment every two years. The final payment is no more than three times the initial payment. Extended repayment is a level repayment plan like standard repayment, but may use a repayment term of 12, 15, 20, 25 or 30 years, depending on the amount owed.
While PLUS Loans are in good standing (not in default), they are serviced by a federal loan servicer. If in default, PLUS loans are transferred to a collection agency for collection.