Did You Know?
♦ The government evaluates the credit history of prospective PLUS loan borrowers.
♦ The yearly limit on PLUS loans is equal to the student’s cost of attendance minus any other financial aid received.
There are two types of PLUS loans: 1) Parent PLUS loans are for parents borrowing for the education of dependent undergraduate children enrolled in school at least half time and 2) “Grad PLUS” loans are available for graduate and professional students.
In some cases, parents are divorced or separated and more than one parent wants to borrow a PLUS loan. In this situation, each parent should complete a separate application form. The total amount borrowed by both parents cannot exceed the PLUS loan limit, which is the cost of attendance minus any other aid received by the student.
Unlike Stafford loans, PLUS borrowers are generally required to pass a credit check. Unless the lender determines that extenuating circumstances exist, you will not pass the credit check if you are:
- 90 or more days delinquent on the repayment of a debt (In 2011, the Department of Education expanded the definition of 90 day delinquency to include accounts with a most recent status of “in collections” or “charged off” in the last five years. The Department may revisit these changes in upcoming rulemaking meetings); or if
- you have been the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a federal government student loan debt, during the five years preceding the date of the credit report.
PLUS borrowers with poor credit may still get loans if they can find someone with a better credit history to co-sign. Lenders may have additional discretion to find “extenuating circumstances.” You will get a letter that looks like this if your initial credit check is approved. This letter informs you of a denial due to adverse credit history. The Department also sends letters to PLUS loan applicants who are likely to be approved if they request reconsideration of a denial.
The Department of Education is considering making changes to the PLUS loan credit evaluation process. Our policy brief highlights the importance of setting ability-to-pay standards for all PLUS loans and ensuring that parent PLUS loan borrowers in particular have access to more flexible repayment options.
Loan Terms, Fees, and Limits
PLUS loans taken out after July 1, 2006 have fixed interest rates. The fixed rate for older Direct PLUS is 7.9%. Interest rates for PLUS Loans taken out prior to July 1, 2006 are variable and capped at 9%. This is a maximum rate. Lenders can set lower rates. For new PLUS loans issued July 1, 2013 through June 30, 2014, the fixed interest rate is 6.41%. The CFPB estimates that this rate is likely to jump for new loans taken out July 1, 2014.
There are also origination fees for PLUS loans, currently 4.2%.
There is no specific limit on the amount of PLUS loans a student or parent can borrow. The maximum amount is the cost of attendance minus any other financial aid received.
Parent PLUS loans are not eligible to be repaid under the income-driven repayment plans. However, parent PLUS borrowers can consolidate the PLUS loans and then choose income contingent repayment (ICR) for the new Direct Consolidation loan.