Direct PLUS Loans
Updated on April 17, 2019
Direct PLUS Loans
Federal student loans include Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. While Direct Subsidized and Unsubsidized Loans are strictly for undergraduate students, Direct PLUS Loans are instead for the parents or legal guardians of undergraduate students. Direct PLUS Loans are also for students pursuing graduate or professional degrees.
This is why Direct PLUS Loans are commonly referred to as either Parent PLUS Loans or Grad PLUS Loans. If you’re a parent wanting to help pay for your child's education or a graduate student needing financial aid to pursue a masters or doctorate degree, you’ll want to know the details of Direct PLUS Loans.
How To Apply For a Direct PLUS Loan
The first step to receiving a Direct Plus Loan is submitting a FAFSA. If you’re a parent, your child in college will need to submit the FAFSA. If you’re a graduate student, you’ll submit your own FAFSA.
The next step for either type of loan will be to complete a PLUS Loan application at StudentLoans.gov.
Regardless of what type of Direct PLUS Loan you apply for, in order to actually qualify, you’ll need to have good credit. Specifically, you cannot have an “adverse credit history”. An adverse credit history comes from having one of the following:
- A current delinquency of 90 or more days on more than $2,085 in total debt
- More than $2,085 in total debt in collections or charged off in the past two years (before the date of the credit report)
- Default, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of federal student loan debt in the past five years (before the date of the credit report)
If you happen to have an adverse credit history, don’t give up hope immediately. You can still receive a Direct PLUS Loan but only if you have a co-signer with good credit. When getting a co-signer for student loans, remember they will also be on the hook for repaying the loans.
Interest Rates and Fees
While Direct Plus Loans can be helpful, their high-interest rates can also hurt your finances. Both Parent and Grad PLUS Loans offer a fixed interest rate that is typically higher than the interest rate of student loans offered to undergraduates. They also come with a loan origination fee that is deducted from the loan amount before you even get your funds. While this applies to undergraduate loans as well, the fee for Direct PLUS Loans are a lot higher. And to top it off, your student loan interest will be calculated on the full amount borrowed, before the fee is deducted.
Are Private Student Loans A Better Option?
So you may be wondering, is there a better option than Direct PLUS Loans? Well, maybe.
If you have good credit and don’t need the flexible repayment options of a federally backed student loan, a private student loan could possibly save you money.
Unlike Direct PLUS loans, private student loans offered by banks and online lenders generally don’t come with fees. On the other hand, they tend to offer variable interest rates that can grow over time or fixed interest rates that are usually higher than the rates of Direct PLUS Loans. Private student loans also commonly lack income-based repayment plans.
But, if your credit score is high enough to get a low fixed interest rate and you lack the need of income-driven payment plans, private student loans could be a better option. Since every lender is different, make sure to shop around to find the lowest interest rate. When shopping around for rates, you’ll want to make sure the interest rate you’re offered is lower than the interest rate of the Direct PLUS Loans.
Ultimately, if you’re a parent or graduate student, Direct Plus Loans should be approached whyzely. For parents, make sure your undergraduate student has used all of their available unsubsidized loans, subsidized loans, grants, work studies, and scholarships before considering a Parent PLUS Loan. While these loans finance your child’s education, you will be liable for repaying the loan. For graduate students, make sure you understand the terms of your Grad Plus Loans and only borrow what you need.