What are Direct PLUS Loans?
TL;DR: Direct PLUS Loans are federal loans for parents of undergraduate students or for graduate/professional students. They help cover education costs not met by other financial aid. Although they have flexible repayment options, they come with higher interest rates and fees, making it essential to weigh them carefully before borrowing.
What Are Direct PLUS Loans?
When it comes to financing higher education, the cost can often exceed the amount covered by scholarships, grants, and standard federal loans. This is where Direct PLUS Loans can be helpful. Offered by the federal government, Direct PLUS Loans are intended for two groups:
- Parents of dependent undergraduate students (Parent PLUS Loans)
- Graduate and professional students (Grad PLUS Loans)
These loans can cover the remaining cost of education after all other financial aid has been applied, bridging the gap to ensure that students have the funds needed for tuition, books, housing, and other expenses.
Who Can Apply for a Direct PLUS Loan?
Direct PLUS Loans are available for:
- Parents of undergraduate students who are classified as dependents and enrolled at least half-time in an eligible program. This type of loan is often referred to as a Parent PLUS Loan.
- Graduate or professional students who are pursuing advanced degrees and are also enrolled at least half-time. These loans are known as Grad PLUS Loans.
One important distinction of Direct PLUS Loans is that they require a credit check. Applicants with adverse credit history may still qualify but may need an endorser or to demonstrate extenuating circumstances related to their credit history.
How Much Can You Borrow?
The borrowing limit for Direct PLUS Loans is unique because it’s based on the cost of attendance minus any other financial aid the student receives. This means the amount can vary greatly depending on the school’s costs and the other financial resources available to the student.
Interest Rates and Fees
Direct PLUS Loans come with higher interest rates than other types of federal student loans, such as Direct Subsidized and Direct Unsubsidized Loans. For the 2023-2024 school year, the interest rate for Direct PLUS Loans is 8.05%. They also have a loan origination fee, which is a percentage of the total loan amount and is deducted upfront. For example, the origination fee is around 4.228% as of 2023.
Repayment Options
Direct PLUS Loans offer various repayment plans to fit different financial situations, including:
- Standard Repayment Plan: Fixed payments over 10 years.
- Graduated Repayment Plan: Lower payments that increase every two years, spread out over 10 years.
- Extended Repayment Plan: Fixed or graduated payments over 25 years (if eligible).
Additionally, Parent PLUS borrowers can request to defer repayment while the student is in school and for six months afterward. Grad PLUS borrowers also have an automatic deferment option while in school and for six months after graduation.
Pros and Cons of Direct PLUS Loans
Pros:
- Flexible borrowing limit: Covers the full cost of attendance minus other aid.
- Flexible repayment options: Choices to meet different financial needs.
- Federal protections: Access to deferment, forbearance, and sometimes forgiveness options.
Cons:
- High-interest rate and fees: Higher costs compared to other federal loans.
- Credit check requirement: Not all applicants qualify, and credit history may affect the process.
- Potential debt burden: Because they allow for large borrowing amounts, PLUS Loans can result in a high debt load if not managed carefully.
Should You Consider a Direct PLUS Loan?
Direct PLUS Loans can be a valuable resource for students and families needing extra support to cover educational costs. However, because of the high-interest rates and origination fees, it’s essential to evaluate all other financial aid options first. If you’re a parent borrower, think carefully about the long-term repayment burden, especially since Parent PLUS Loans don’t qualify for income-driven repayment plans like Grad PLUS Loans do.
Ultimately, Direct PLUS Loans can make higher education more accessible, but they should be approached with careful consideration. Always explore scholarships, grants, and other federal student loans first—and then see if a Direct PLUS Loan might be the right choice to bridge the final financial gap.
Disclaimer: The information provided in this post is for general informational purposes only and should not be considered financial advice. Student loan situations can vary significantly based on individual circumstances, and decisions around deferment or forbearance can have lasting financial impacts. Before making any changes to your loan repayment plan, consult a qualified financial advisor or your loan servicer to understand the best options for your unique situation.