Direct PLUS Loan

Published on :

21 Aug, 2024

Blog Author :

Edited by :

Reviewed by :

A direct PLUS loan is a federal loan that graduate or professional students and parents of dependent undergraduate students can use to meet the cost of higher education. This loan helps cover the financial shortfalls left by the other forms of financial aid, for example, scholarships, grants, etc.

The U.S. Department of Education provides this financial assistance via the William D. Ford Federal Direct Loan Program. The direct PLUS loan interest rate is fixed and does not come with any subsidy. This means that the interest accrues while a student is yet to finish school. These loans are of two types — grad PLUS and parent Plus loans.

What Is Direct Plus Loan?

The direct PLUS loan definition refers to a loan provided by the federal government to students or their parents to help them pay off their full cost of attendance. Students can avail of this type of financial assistance if their grant or scholarship is insufficient to meet the expenses.
PLUS loans come with a fixed interest rate only, unlike private loans.
If individuals do not pass the credit check, they can get an endorser for the loan to avail of the financial assistance.
The loan amount is transferred to the school first. Then, students or parents receive the remaining amount.

How Does Direct Plus Loan Work?

The Direct PLUS loan definition refers to a loan provided by the U.S. Department of Education to the parents of dependent undergraduate and professional or graduate students to help pay for higher education expenses. The idea of such a loan is to help parents or students close the gaps in education costs if they have utilized the full amount of a private loan.

Direct PLUS or simply PLUS loans are of two types. Let us look at them in detail.

#1 - Parent PLUS Loans

The U.S. Department of Education offers a parent PLUS loan worth up to the full cost of attendance to help parents of dependent undergraduate students cover education costs not already covered by a financial aid package. In this case, there is no cumulative limit to the amount a parent may borrow. Additionally, one must note that the parents must pay off such a loan. In other words, they cannot transfer the financial obligation to the student.

#2 - Grad PLUS Loans

These loans enable graduate and professional students to avail of financial assistance for meeting education costs worth not more than the full cost of attendance. In addition, one can utilize them to cover expenses not already covered by a scholarship, grant, or other financial aid.

The funds provided by the U.S. Department of Education first go to the educational institution so that all expenses, for example, room and board fees. The parent or student receives the remaining amount (if any).

Additionally, individuals must remember that Federal direct PLUS loans carry a fixed interest rate for the entire tenure. For instance, loans paid out on or after July 1, 2022, and before July 2023 come with an interest rate of 7.54%.

Eligibility

The direct PLUS loan requirements are as follows:

An individual must be an adoptive or biological parent of a student with at least a part-time enrolment at an eligible school. However, one must note that grandparents do not qualify for this type of financial assistance even if they are custodial parents of a student.
Students or parents must pass a credit check to avail of a federal direct PLUS loan. However, if individuals do not pass a credit check can obtain an endorser to get financial assistance. Alternatively, they can get approval from the U.S. Department of Education by explaining the excruciating circumstances related to their poor credit history.
Lastly, parents must be American citizens or eligible non-citizens, and their child must be a part of an undergraduate program at an eligible school. Students availing of this loan must also be citizens or eligible non-citizens.
In the case of a grad PLUS loan, at least part-time enrolment in a professional or graduate program at an eligible school is necessary for students.

How To Apply?

If individuals fulfill the direct PLUS loan requirements, they can apply for financial assistance by following the steps mentioned below:

Fill out the FAFSA form. FAFSA is the abbreviation for Free Application for Federal Student Aid.
Provide the required details so the government can confirm the fulfillment of the eligibility criteria.
Sign the Master Promissory Note.

If one completes the application procedure successfully, the government transfers funds to the school for various expenses, for example, tuition and room and board fees. The applicant will receive the extra funds (if any). Parents can decide whether to keep the additional funds or give them to the student.

One requires the following details when applying for a PLUS loan:

Employer’s information
Verified Federal Student Aid (FSA) ID
Student’s information (address, date of birth, Social Security number, etc.)
School name

Example

Let us say that the cost of attendance for John’s dependent child enrolled full-time in an undergraduate program is $10,000. The student received a scholarship worth $7,000. John doesn’t have sufficient funds to cover the financial shortfall. As a solution, he can borrow a direct PLUS loan of up to $3,000 to cover the costs of his child’s education.

Direct Plus Loan Forgiveness

The federal government may forgive grad and parent PLUS loans under specific circumstances. First, individuals must consolidate via the direct consolidation loan for the forgiveness of parent PLUS loans through Public Service Loan Forgiveness or PSLF. Then, they can enroll in an income-contingent repayment (ICR) plan.

The government may discharge a parent PLUS loan if —

A student’s educational institution closed before the program’s completion.
Debtors (parents or students) die or become permanently disabled.
Children withdrew from school, and they or their parents did not get any refund for the loan amount paid to the educational institution.
A school falsely certified an individual’s eligibility for financial assistance, or the individual fulfilled the eligibility criteria through identity theft.

The government may also forgive grad PLUS loans. Individuals who availed of the financial assistance must consolidate their loan and enroll in an IDR or income-driven repayment plan. Such a plan enables students to repay the loan based on their family size and earnings. After 20 or 25 years, the government forgives the loan. Also, one must remember that the forgiveness of grad PLUS loans can occur via Teacher Loan Forgiveness or PSLF.

Advantages And Disadvantages

Once individuals know the direct PLUS loan requirements, they must become aware of the benefits and limitations of this type of financial assistance.

Advantages

Parents can borrow the entire amount required for their child’s education.
Direct PLUS loan interest rate is not variable; it remains the same throughout the tenure. Hence, individuals have a clear idea of their financial obligation.
One does not need to demonstrate any financial requirement to fulfill the eligibility criteria.

Disadvantages

Individuals must pass a credit check to get a PLUS loan.
The federal government imposes a certain fee for every disbursement.
Parents cannot transfer their financial obligation to their children upon the completion of the program.

Direct Plus Loan vs Private Loan

For students unfamiliar with different types of financial assistance, PLUS and private loans can be confusing. That said, one must know how these two loans differ from each other to decide which one is suitable to meet their financial requirements. So, here is a tabular representation of the differences between private and PLUS loans.

Direct PLUS Loans	Private Loans
The direct PLUS loan interest rate remains the same through the tenure.	Private loans come with fixed or variable interest rates.
The loan tenure ranges from 10-25 years, depending on the repayment plan.	The loan tenure ranges from 5-20 years; it varies from one lender to another.
One needs to fill out the FAFSA form.	Borrowers do not need to fill out the FAFSA form.
Individuals must pay an origination fee of 4.228% for loans disbursed after September 30, 2020, and before October 1, 2023.	The origination fee varies across different lenders.

Frequently Asked Questions (FAQs)

1. How much direct PLUS loan can I get?

Individuals can compute the maximum PLUS loan amount by subtracting any financial aid received (scholarships, grants, etc.) from the full cost of attendance. However, one must note that there isn’t any aggregate or annual limit.

2. Should I refinance my direct plus loan?

If individuals decide to refinance their loans, they must do so early in the repayment period, for instance, even before the loan deferment ends. This way, they can save a lot of money.

3. How long does it take for a direct PLUS loan to be approved?

Because of the large number of loan applications at peak times (especially in summer and the beginning of the fall term), it can take around four weeks to process a loan and post it on a student’s financial aid summary.

4. What credit score is needed for a federal Direct PLUS loan?

There is no minimum credit score requirement in this case. Such loans are unlike private loans offered by lenders who determine the interest rate and eligibility based on a borrower’s credit score. That said, individuals must ensure not to have an adverse credit history to avail of a PLUS loan without hassle.