PLUS Loans: What They Are And Who They’re Best For

With nearly two decades in journalism, Dori Zinn has covered loans and other personal finance topics for the better part of her career. She loves helping people learn about money, whether that’s preparing for retirement, saving for college, crafting.

With nearly two decades in journalism, Dori Zinn has covered loans and other personal finance topics for the better part of her career. She loves helping people learn about money, whether that’s preparing for retirement, saving for college, crafting.

With nearly two decades in journalism, Dori Zinn has covered loans and other personal finance topics for the better part of her career. She loves helping people learn about money, whether that’s preparing for retirement, saving for college, crafting.

With nearly two decades in journalism, Dori Zinn has covered loans and other personal finance topics for the better part of her career. She loves helping people learn about money, whether that’s preparing for retirement, saving for college, crafting.

Updated: Aug 19, 2020, 10:48am

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With the cost of college continuously on the rise, not having enough money to cover the entire cost of attendance is also going up. Whether you’re a parent, an undergraduate student or at the graduate or professional level, you may need to tap into other resources, including a direct PLUS loan.

What Is a PLUS Loan?

A PLUS loan is available to graduate or professional students and parents of dependent undergraduate students. Undergraduates can take advantage of both subsidized and unsubsidized federal student loans, as well as parent PLUS loans.

PLUS loans are available for parents to take out on their student’s behalf or for graduate and professional students to continue their education. These loans cover any financial gaps left by other types of financial aid, including grants, scholarships and other federal student loans.

Types of PLUS Loans

There are two types of PLUS loans:

• Direct PLUS, also known as grad PLUS. These loans are available to graduate or professional students who are enrolled at least part-time, are eligible for federal student aid and who don’t have major credit history problems, including recent delinquencies of 90 days or more.
• Parent PLUS. These loans are for parents to borrow and pay for school on behalf of their college student. Parents take out this loan and parents—not students—are required to pay it back. Parent PLUS loans also have credit requirements.

PLUS Loan Costs

The interest rates for PLUS loans are higher compared to subsidized and unsubsidized loans. Interest rates are the same for both grad and parent PLUS loans regardless of credit history, even though a bad credit score might prevent you from qualifying for a loan. Interest rates on loans disbursed after July 1, 2022 (and before July 1, 2023) are set at 7.54%, or about 2 ½ percentage points higher than the interest rate on a direct subsidized loan. PLUS loan interest rates are fixed, meaning that once the loan is disbursed, the interest rate doesn’t change for the life of the loan unless you consolidate or refinance your loans.

Interest rates aren’t the only costs you’ll face if you take out a PLUS loan. You’re also on the hook for loan fees. Both the grad and parent versions have a 4.228% loan fee if your loan is disbursed between Oct. 1, 2020 and Oct. 1, 2023.

PLUS Loan Limits

You can borrow as much as the cost of attendance minus any other types of aid you’re receiving. Once you’ve exhausted all other financial aid through grants, scholarships and other types of loans, you may consider using PLUS loans to cover the difference.

While other types of loans have limits to how much you can borrow, PLUS loans do not. The individual college or university will determine the student’s cost of attendance and then calculate how much extra funding needs to come from PLUS loans after other aid has been exhausted.

PLUS Loan Eligibility

If you’re interested in borrowing a PLUS loan as a graduate student or parent of an undergraduate student, you can qualify if:

• You don’t have an adverse credit history. Even with a bad credit score, you might qualify for a PLUS loan. The federal government says an adverse credit history includes debts of more than $2,085 that are 90 days or more delinquent; a default, bankruptcy discharge or repossession on your credit report within the last five years; a foreclosure, wage garnishment or tax lien within the last five years or federal student aid write-off within the last five years.
• You’re the parent of a college student or a graduate or professional student. Student borrowers must be enrolled in college at least half-time. Other borrowers must be legal parents—biological, adoptive or in some cases stepparents—of a dependent undergraduate student who is enrolled at least part-time. Grandparents and legal guardians are not eligible to receive these loans even if they have primary responsibility for a child.
• You meet general financial aid eligibility requirements. This includes being able to prove financial need, that you are a U.S. citizen or eligible non-citizen and are enrolled in a qualifying degree or certificate program in an eligible college or career school.

How to Apply for a PLUS Loan

While PLUS loans are available for both graduate students and parents of undergrads, there are two separate applications. If you’re a graduate or professional student, you’ll need to apply using a Direct PLUS application for graduate or professional students. Before you apply, you’ll need:

• Verified FSA ID
• School name
• Personal information (mailing address, email address and phone number, for example)
• Employer’s information

If you’re a parent, you’ll need to apply using the Direct PLUS application for parents. Before you apply, you’ll need:

• Verified FSA ID
• School name
• Student information (like name, address, Social Security number, date of birth)
• Personal information
• Employer’s information

To receive funds for both the graduate/professional or parent PLUS loans, you’ll need to complete a Master Promissory Note. The federal government will disburse funds directly to the school for tuition and fees with any extra funds directed to you. If you’re the parent, you can determine if the excess funds go to you or your student.

How to Repay a PLUS Loan

PLUS loans require repayment to start within 60 days of disbursement, but parents can defer the repayment until the student graduates or drops below half-time enrollment. The repayment period is typically 10 years, although you can choose from among other plans that allow repayment over 25 years.

Parent PLUS loans also are eligible to start repayment six months after the graduation grace period. Interest accrues while the student attends school but isn’t subsidized by the federal government, like direct subsidized loans are.

Both graduates and parents are eligible for a few different repayment plans. The grad PLUS loan is eligible for all repayment plans, including all income-driven repayment plans. The parent PLUS loan, however, is only eligible for the income-contingent repayment (ICR) plan after it’s been consolidated into a direct consolidation loan.

If you’re struggling to repay your PLUS loan, contact your loan servicer to see if you qualify for deferment or forbearance. This allows you to stop paying your loan without facing a penalty, although interest will still accrue.

Can you Cancel A Federal PLUS Loan or Have One Forgiven?

Both grad and parent PLUS loans are eligible for forgiveness and cancellation, under certain circumstances.

For parent PLUS loans to be forgiven through Public Service Loan Forgiveness (PSLF), you’ll first need to consolidate through the direct consolidation loan. Then you can enroll in ICR.

Parent PLUS loans can also be discharged if:

• You die or become totally and permanently disabled
• The student’s school closed before they could finish their program
• Your eligibility for the loan was falsely certified by the school or through identity theft
• Your child withdrew from the school and you didn’t get a refund for the loan money paid to the school

Grad PLUS loans can also be forgiven. You can consolidate your loan and then enroll in an income-driven repayment plan. These plans allow you to make payments based on your income and family size. After 20 or 25 years, the balance of your loan is forgiven.

Grad PLUS loans are also eligible for forgiveness through PSLF and Teacher Loan Forgiveness. In both grad and parent cases, you can contact your loan servicer to learn about more options based on your circumstances.

PLUS Loan Drawbacks

While PLUS loans have their appeal, there are some downsides, including:

• Limited repayment options. Parent PLUS loans are only eligible for ICR (25 years) and that’s only after they’ve been consolidated through a direct consolidation loan. Other direct loans allow you to choose different income-driven repayment plans.
• No borrowing limit. Parent PLUS loans let you borrow as much as you want, up to the school’s cost of attendance minus other financial aid. That can encourage overborrowing, or taking on more debt than you can reasonably repay after the student graduates.
• No grace period. Once the government disburses your loan, you’re immediately obligated to start making payments. You can defer payments until after you (or your child) graduates or up to six months after they leave school—the equivalent of a grace period that other direct loans get. But unless you make the request with your loan servicer, you need to start making payments right away.

PLUS Loan Alternatives

If you need extra money to cover college costs but don’t want to (or don’t qualify for) a PLUS loan, you may have some other options, including:

School loans or grants. Many colleges have small-dollar, interest-free emergency loans to cover tuition, fees and other costs that aren’t filled by financial aid. Some schools have grants, or free money you’re not obligated to pay back. Ask your school’s financial aid office about what financing options they have and what you qualify for.

Private student loans. Both parents and students can take out private student loans to fill funding gaps left by other financial aid. Private student loans require a credit check, a decent credit score and proof of income to show you can repay the loan. Many students who take out private student loans still use parents as co-signers to qualify since most don’t have a strong credit history to borrow on their own. These loans usually have similar repayment periods, like starting repayment six months after leaving school. However, there’s no universal standard and private lenders operate on their individual terms.