What is a Direct PLUS Loan? How to Apply and Alternative Options

What is a Direct PLUS Loan? How to Apply and Alternative Options

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A Direct PLUS Loan is a federal loan that graduate students, professional students and parents who want to help their children afford college can take out to pay for school. The loan has a fixed interest rate of 7.6% for the 2018–2019 school year with a 4.248% origination fee. Parents and graduates usually take out this type of loan when their federal aid package doesn't cover all school costs. However, before you apply for a Direct PLUS Loan, you should understand how it works and your other options.

What is a Direct PLUS Loan?

Direct PLUS Loans are federal loans available to graduate students, professional students and parents of undergraduate students. These loans are more similar to private loans, as they require a credit check and have higher interest rates and fees than other federal loans. Students and parents can borrow up to the cost of attendance, which is determined by the school, minus any other financial aid offered.

Direct PLUS Loan Rates and Fees

Direct PLUS Loan rates are set at 7.6% for the 2018–2019 school year with a 4.248% origination fee. The fee is deducted proportionately from each loan disbursement you receive, meaning you will receive less money than you borrow, but you will repay the entire amount plus interest. So, if you take out a $10,000 loan, you would actually receive around $9,575.

YearInterest rate
Disbursed on or after July 1, 2018, and before July 1, 20197.6%
Disbursed on or after July 1, 2017, and before July 1, 20187.0%

What is a Parent PLUS Loan?

Parent PLUS Loan is the term used to describe a parent taking out a Direct PLUS Loan to help pay their child's education costs. These loans don't have limits like other federal student loans do, so you can help meet your student bills if financial aid doesn't cover all of their school expenses. However, you'll be responsible for paying the loan, even if your child refuses to cover it.

Repayment begins 60 days after each loan is disbursed. However, you can request a deferment while your child is enrolled at least half-time and for a grace period of six months after your child leaves school or falls below half-time status. Repayment can also be deferred while the parent is enrolled in school at least half-time or during the grace period after leaving school. As a parent, you'll have access to standard, graduated and extended repayment plans. Plus, income-contingent repayment plans are available if you consolidate your loans into a Direct Consolidation Loan.

What is a Grad PLUS Loan?

Grad PLUS Loans are commonly used instead of Direct PLUS Loans for graduate or professional students taking out a PLUS loan. Students will usually get these loans because their other federal student aid doesn't cover the full cost of attendance. Since PLUS loans allow students to borrow up to all school costs, which include tuition, fees, room and board, and books and supplies, they can be very helpful to those who need it.

For Direct Grad PLUS Loans, you won't have to repay your loans while enrolled in school at least half-time. Once you leave school or drop below half-time status, you'll have a six-month grace period before repayment begins. In addition to the repayment options available to parent borrowers, you'll also be eligible for income-driven repayment plans, which can help lower your student loan bill each month if you are unable to meet the payments under another plan.

Direct PLUS Loan Application

Before you apply for a Direct PLUS Loan, you will need to complete the Free Application for Federal Student Aid (FAFSA) and obtain a Federal Student Aid (FSA) ID. After this, your school will then provide instructions for requesting a PLUS Loan. Generally, you will be required to apply on StudentLoans.gov or contact the financial aid office at your or your child's school.

On StudentLoans.gov, you will need to complete an application and provide supplemental information to determine your eligibility for a PLUS Loan. The application must be filled out in a single session, meaning you can't save your information and finish the form later, and it will take approximately 20 minutes to complete. You will need a verified FSA ID, the school's information, student personal details and, if you are a parent taking out a loan for your child, you will need to give your personal details with your employer information.

After you complete the form, you must complete a Direct PLUS Master Promissory Note (Direct PLUS Loan MPN), which explains the terms and conditions of the Direct PLUS Loan and your agreement to repay the total amount you receive. Check to see if your school has other instructions for requesting this loan.

Direct PLUS Loan Eligibility

To be eligible for a Direct PLUS Loan, you must meet the minimum criteria listed below. Keep in mind that if you are applying for a Parent PLUS Loan, both you and your child must meet the general eligibility requirements. Also, relatives other than those listed, legal guardians and foster parents are ineligible to take out Parent PLUS Loans. You must:

  • Be a biological, adoptive or stepparent of a dependent undergraduate student OR graduate or professional student enrolled at least half-time at an eligible school
  • Not have adverse credit history
  • Meet the general eligibility requirements for federal student aid
    • U.S. citizen or eligible noncitizen
    • Have a valid Social Security number*
    • Male students must be registered with the selective service*
    • Student must be enrolled at least half-time in an eligible school or program
    • Must not be in default on a federal student loan

*with the exception of students from the Republic of the Marshall Islands, Federated State of Micronesia and the Republic of Palau

Pros and Cons of Direct PLUS Loans

To help you decide whether you should apply for a Direct PLUS Loan, we have laid out some of the top pros and cons that come with this loan.

Pros of Direct PLUS Loans

You can borrow as much as you need to cover education expenses: This is different from Direct Subsidized and Direct Unsubsidized Loans, as students can only borrow up to certain limits, depending on certain factors, including their year in college. With Direct PLUS Loans, you can borrow up to the cost of attendance minus any other financial aid you receive. It's best to borrow only what you need, as you'll need to eventually repay the loans with interest.

Your interest rate will be fixed over the life of your loan: Direct PLUS Loan interest rates are fixed, even if rates rise the following year. Currently, interest rates are set at 7.6% for the 2018–2019 school year, which is an increase of 0.6 percentage points from the previous school year. This means you will pay $3,933 in total interest for a $10,000 loan taken out in the previous school year with a standard repayment plan and $374 more for a loan taken out this year.

You have access to multiple repayment plans: Student Direct PLUS Loan borrowers have seven different repayment plans to choose from, including income-driven repayment plans, while Parent PLUS Loan borrowers only have four. And the only way for parent borrowers to qualify for an income-contingent repayment plan is to consolidate their Parent PLUS Loans into a Direct Consolidation Loan.

You can file for a tax deduction on the interest you pay on the loan: Direct PLUS Loan borrowers may be able to deduct up to $2,500 of the interest paid on their loan, depending on income. To claim a deduction, your modified adjusted gross income must be less than $80,000 for single filers or less than $165,000 for joint filers.

Cons of Direct PLUS Loans

You have to pay an origination fee: The fee is proportionally deducted from each loan disbursement. If you borrow $10,000, you will only receive around $9,575, but you will pay back the total loan amount plus interest. The loan fee for federal loans other than Direct PLUS Loans is 1.062%, so it is best for you to exhaust all those option before taking out a PLUS loan.

Your credit will be checked: If you have an adverse credit history, you may not qualify for one of these loans. The Department of Education defines an adverse credit history as one that includes a debt greater than $2,085 that has been delinquent for 90 days or more or placed in collections in the past two years; and you also can't have a default, bankruptcy, foreclosure, repossession, tax lien, wage garnishment or a write-off of federal student debt on your credit report. However, you may still qualify for a loan by applying with a creditworthy co-signer. That person would be responsible for making payments if you fall behind.

Many private lenders offer lower rates: If you have an excellent credit history, you may qualify for lower rates with a private lender than you would pay on a PLUS Loan. For example, Citizens Bank has fixed rates starting at 5.74% with no origination fee, which can help you save on interest. It's important to remember that you won't get to take advantage of federal loan repayment plans and deferment policies, which tend to be more flexible than those offered by private lenders.

Parents must start repayment soon after the loan is disbursed: Unlike Direct PLUS Loans for students, repayment on a Parent PLUS Loan starts 60 days after the loan is fully disbursed. However, you can request to defer payments while your child is enrolled half-time and six months after your child graduates or falls below half-time status. During this time, you won't have to make any payments on the loan, but interest will continue to accrue.

Alternative Options

If your Direct PLUS Loan application is denied or you want try to get a lower rate, there are other options to consider. You can explore other ways to pay for college, including grants, scholarships and work-study programs, before you consider taking out a loan. Private student loans are also an option for you or your child, as many don't come with an origination fee and may have a lower interest rate than a Direct PLUS Loan, depending on your credit history. Here are some of our top private student loan options for you to consider.

Private Student Loans for Parents

Citizens Bank

  • on Citizens Bank's secure website
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Citizens Bank is a good option for parents who want to borrow up to $350,000 for their child's education. You can choose between a five-year and 10-year repayment term with the option to start repayment immediately or pay interest only while the child is in school. Fixed rates start at 5.74% with no origination fee.

Sallie Mae

  • on Sallie Mae's secure website
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Sallie Mae can help you cover up to 100% of your child's cost of attendance with no origination fee, and it will include four months of free study support for your child. You can choose between interest-only repayment or full repayments as soon as the loan is disbursed. Like Citizens Bank, fixed and variable interest rates start at 5.74%.

Private Student Loans for Graduate Students

College Ave

  • on College Ave's secure website
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College Ave loans can cover up to 100% of the school's cost of attendance. Your loan term will be between five and 15 years, and you can choose from four different repayment plans: full principal and interest payments, interest-only payments, flat payments and deferred payment. Fixed rates start at 5.29%.

SunTrust Bank Student Loans

SunTrust Bank
  • on SunTrust Bank's secure website
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SunTrust Bank offers two types of loans for graduate students and one loan specifically for business school students. The Custom Choice student loan and Union Federal® private student loan are each capped at $65,000, while the Graduate Business School Loan extends to $95,000. There are no fees to apply, and you can defer payments while in school or choose from three other repayment plans. Fixed rates start at 5.35% for all three loan types.

Madison is a former Research Analyst at ValuePenguin who focused on student loans and personal loans. She graduated from the University of Rochester with a B.A. in Financial Economics with a double minor in Business and Psychology.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.