If you're planning on taking out a loan to help pay for college, you may be wondering if a Direct PLUS Loan (also called the Parent PLUS Loan) is the way to go. Here, we'll tell you everything you need to know about Parent PLUS loans so you can decide if they're a good deal for you. We'll cover:
Eligibility
The Direct PLUS loan is a federal loan offered to parents of dependent undergrads and to graduate students themselves. These loans can cover up to the full cost of attendance (COA) minus any other aid or assistance.
The U.S. Department of Education is the lender of these fixed rate loans.
Only parents and stepparents who are currently married to the student’s parent may request the loan. And, the Direct Parent PLUS Loan is not dependent on financial need, so even wealthy families qualify.
Parent PLUS Loans can be awarded to parents who do have adverse credit histories. For those parents with credit history issues, a cosigner can be used.
Or, if parents don’t qualify for the Direct PLUS loan, dependent students can become eligible for same Direct Unsubsidized Loan limits given to independent students.
Other requirements of the Direct PLUS loan are:
- Students enrolled at least part time
- Male students have registered for the draft
- Students and parents are US citizens, nationals, or permanent residents
- Students and parents can’t be in default on other federal aid
- Disbursement must be used toward COA
Repayment
Repayment of the Direct Parent PLUS loan begins 60 days after disbursement. The loan repayment can be deferred while the student is in school and for six months after graduation (or dropping below part-time status).
If the parent is enrolled in a school program on at least a half-time basis, the Direct PLUS loan can also be deferred.
Repayment is 10 years and in some cases, the loan may be eligible for extended and graduated repayment plans, as well as income-contingent repayment and Public Service Loan Forgiveness.
Pros and Cons
All that sounds pretty good, right? Well, let’s not get ahead of ourselves. See, the interest rate on Direct Parent PLUS loans is high. For the 2018-2019 school year is 7.6%. And, to top it off, there’s a loan fee of 4.284%.
Let’s take a look at some of the other pros and cons of the Direct PLUS Parent loan.
Pros
- Helps cover gaps in COA not taken care of by federal student loans and other aid
- Different repayment options
- Eligible for consolidation
- Deferred while student is in school
Cons
- High interest rate
- Repayment starts right away
- High origination fee
- Puts responsibility of paying for college on parent, which can delay or jeopardize retirement
FAQ About the Direct Parent PLUS Loan
Q: Is a Direct PLUS loan the same as a Parent PLUS loan?
A: Yes. The loan is called both the Parent PLUS loan or the Direct PLUS loan.
Q: How does a Parent PLUS loan work?
A: A Parent PLUS loan is offered to parents to pay for gaps in the student’s COA after other aid has been applied. You begin with the FAFSA. The school’s financial aid office will let you know about how to request the Direct PLUS loan. If you’re eligible for the loan, you’ll sign a promissory note to agree to the terms. Then the funds will be disbursed and can be applied to education-related costs. Repayment starts 60-days after disbursement unless you qualify for special repayment plans.
Q: Are Parent PLUS loans better than private loans?
A: That depends on a lot of factors. Private loans may have better interest rates, which can save you money, but have less-flexible repayment terms. You’ll need to do your research about what terms work best for your family.
Q: Can you get a Parent PLUS loan with bad credit?
A: Yes, but you’ll need an endorser without an adverse credit history, but it is possible to be eligible for the Parent PLUS loan despite bankruptcies, foreclosures, and other financial issues.
Q: Can I transfer responsibility of Parent PLUS loan payments to my child?
A: No. These loans are specifically for parents. When you take out a Direct Parent PLUS loan, you are legally responsible for repaying the loan.
Other loan alternatives
If you’re considering a Parent PLUS Loan, you may be able to score a lower interest rate by taking out a private student loan instead. See our picks for the best student loan deals available right now.