Parent PLUS & Graduate PLUS Loans

PLUS loans are federal loans given to graduate students and parents of undergraduate students. Once called the Parent Loan for Undergraduate Students, these loans are now known simply as Parent PLUS and Grad PLUS loans.

Parent PLUS Loan Eligibility

PLUS loans are only available to the biological or adoptive parents of undergraduate college students or for students enrolled in graduate or professional schools.

That means legal guardians, foster parents. grandparents, aunts, uncles and other relatives aren’t eligible to apply for a loan to benefit the student.

Unlike most conventional loans, PLUS loans don’t set minimum credit scores or debt-to-income ratio for approval. Nevertheless, borrowers need to have solid credit histories. They can’t owe more than the they want to borrow unless they have someone with stronger credit to cosign the loan.

Other reasons for rejection include:
  • Delinquency of 90 days or more on debt of more than $2,085.
  • More than $2,085 in debt that has gone into collection or was charged off during the prior two years.
  • Default, discharged or debt in bankruptcy, foreclosure, tax lien, wage garnishment or a write off of a federally guaranteed student loan debt in the past five years.

Students must attend school at least half time to receive a loan. In addition, male students must be registered with Selective Service and students and parents must be U.S. citizens, permanent residents or eligible non-citizens.

Students whose parents are rejected for a PLUS loan become eligible for unsubsidized direct loans. Limits are placed on how much the student can borrow while pursuing a degree.

Undergraduates can only borrow $57,500 in total and no more than $23,000 of that can be a subsidized loan. Graduate students may borrow $138,500 and no more than $65,500 can be subsidized.

The graduate loan amounts include any money borrowed to obtain an undergraduate degree.

PLUS Application Process

If you meet the eligibility requirements, the next step is applying for a PLUS loan. Go online to fafsa.ed.gov to fill out an application for or contact the student’s school’s financial aid office and request a FAFSA application form. To learn if your student’s school participates in the PLUS program, go to the federal StudentLoans.gov website and review the list of institutions in the program. If the school isn’t on the list, contact the financial aid office to find out how to request a PLUS loan.

Eligible applicants must complete and sign a Direct PLUS master promissory note, which is an agreement to adhere to the terms of the loan. Graduate and professional students who haven’t previously had a PLUS loan will be required to complete loan counseling. Again, the institution’s financial aid office should have details about procedures and requirements.

Limits apply to how much a family can borrow under the program. The maximum amount of a loan is set by subtracting all other financial assistance from the total cost of attendance.

In early 2018, Parents Plus loan interest rate was 7%. The program also sets an origination fee of 4.276%, which can be added to the loan’s principal or can be deducted from each loan dispersal.

Parents can deduct as much as $2,500 a year in interest paid on PLUS loans. This is an above the line income tax exclusion, so it doesn’t require a filer to itemize.

Once a PLUS loan is approved, the proceeds will be applied directly to tuition, fees, room and board and other academic charges. If any loan funds remain, the school will distribute them to pay for other educational expense.

Denial of Parent PLUS Loan

If a student’s parents’ PLUS loan is denied, the parents can try to find a credit-worthy cosigner, also called an endorser, to guarantee the loan. To include an endorser, the applicant needs to complete the Electronic Endorsement Addendum section of the loan application. In addition, the parent must complete PLUS credit counseling and a PLUS master promissory note.

You can also appeal the rejection, a step that involves providing documentation of an extenuating circumstances that led to the denial. In addition to filing the appeal, the parent or parents need to complete PLUS credit counseling.

Finally, the student whose parents were rejected can apply for a Federal Direct Unsubsidized Stafford Loan. Under that project, the student can borrow $4,000 to $5,000 annually, and up to $26,500 in pursuit of a degree. These are the same limits available to independent students.

Refund of PLUS Loan

If you wind up not needing all the money lent through the PLUS loan, the balance can be credited to either the student or the parent. The parent borrower needs to designate who will receive the unused balance.

Typically, remaining loans funds can be used to help pay other education-related expenses. You should designate who will receive the funds during the application process.

Bill Fay

Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

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