Direct PLUS loans are federal loans that can be used to help pay for school expenditures by graduate or professional degree students or parents of dependent undergraduate students. Direct PLUS loans have a fixed interest rate and are not subsidised, thus interest accumulates while the student is in school. An origination fee will be levied on you when you apply for a Direct PLUS Loan. Before you or the school receives the funds, an origination charge is withheld from the loan distribution. Read this blog to know more about Direct PLUS Loan eligibility, types, how to apply, forgiveness and more.
| Loan Name | Direct PLUS Loan |
| Max Loan Length | 30 years, depending on the amount borrowed and the repayment plan chosen |
| Interest Rate | The variable does not exceed 8.25% |
| Max Loan Amount | $2,625 to $8,500 |
| Payment Frequency | Monthly |
| Prepayment Penalties | None |
| Max Loan Length | Up to 4% of the loan |
What is Direct PLUS Loan?
Direct PLUS Loans are made available to qualifying parents and graduate or professional students by the United States Department of Education through schools that participate in the Direct Loan Programme.
Note: When granted to a parent, a Direct PLUS Loan is generally referred to as a parent PLUS loan, and when made to a graduate or professional student, it is referred to as a grad PLUS loan.
Here is a basic overview of Direct PLUS Loans:
- Your lender is the United States Department of Education.
- You cannot have a bad credit history. A credit check will be performed. If you have a bad credit history, you may still be able to get a PLUS loan if you match other criteria.
- The maximum PLUS loan amount is the cost of attendance (as established by the school) less any additional financial aid obtained.
Must Read: Benefits Of Education Loans: Features And Advantages Of Why You Should Take An Education Loan!
Types of Direct PLUS Loans
There are two types of direct PLUS loans. Let’s take a closer look at them.
Parent PLUS Loans
The United States Department of Schools provides a parent PLUS loan worth up to the full cost of attendance to assist parents of dependent undergraduate students in covering school expenditures that are not fully covered by a financial aid package. There is no cumulative limit on the amount a parent may borrow in this circumstance. It should also be noted that the parents must repay such a debt. In other words, the financial duty cannot be transferred to the student.
Grad PLUS Loans
These loans allow graduate and professional students to get financial support for school costs that do not exceed the entire cost of attendance. Furthermore, they can be used to pay expenses that are not already covered by a scholarship, grant, or other form of financial help.
The money supplied by the United States Department of Education first goes to the educational institution to cover all expenses, such as lodging and board. The remaining cash (if any) is given to the parent or student.
Eligibility Criteria
The following are the direct PLUS loan requirements:
- An individual must be the adoptive or biological parent of a student enrolled at an approved school on a part-time basis. However, even if they are the custodial parents of a student, grandparents do not qualify for this form of financial support.
- To obtain a federal direct PLUS loan, students or parents must pass a credit check. Individuals who do not pass a credit check, on the other hand, can seek financial assistance through an endorser. Alternatively, students can obtain permission from the United States Department of Education by outlining the terrible circumstances surrounding their negative credit history.
- Finally, parents must be US citizens or eligible non-citizens, and their child must be enrolled in an undergraduate programme at an eligible institution. Students that apply for this loan must be citizens or eligible non-citizens.
- Students must be enrolled at least part-time in a professional or graduate programme at an accredited school to qualify for a grad PLUS loan.
Must Read: Here’s How You Can Get An Education Loan Without Income Proof!
Application Process
Individuals who meet the direct PLUS loan requirements can apply for financial aid by following the steps outlined below:
- Fill out the FAFSA application. FAFSA stands for Free Application for Federal Student Aid.
- Provide the necessary information so that the government may certify that the eligibility criteria have been met.
- Fill out and sign the Master Promissory Note.
If the application procedure is successfully completed, the government transfers funding to the school for various charges such as tuition and room and board fees. The applicant will get any additional monies. Parents can choose whether to keep the extra funds or give them to their children.
Details Required
When applying for a PLUS loan, the following information is required:
- Details about the employer
- Federal Student Aid (FSA) ID verification
- Information about the student (address, date of birth, Social Security number, etc.)
- The school’s name
Must Read: Student Loan Tax Deduction: Calculator, Income Limit, Section 80E
Pros and Cons of Direct PLUS Loan
Individuals must be aware of the benefits and restrictions of this sort of financial help after they are aware of the direct PLUS loan requirements.
Pros
- Parents can borrow the entire cost of their child’s education.
- The interest rate on a direct PLUS loan is not variable; it remains constant throughout the term. As a result, people are aware of their financial obligations.
- To meet the eligibility criteria, no financial requirements must be demonstrated.
Cons
- A credit check is required to obtain a PLUS loan.
- The federal government charges a fee for each distribution.
- Parents cannot transfer their financial obligations to their children once the programme is completed.
Repayment Options
Borrowers of Parent PLUS loans have three repayment options:
- Standard Repayment Plan– This repayment plan saves you money over time because your monthly payments are slightly more than in other plans, but you will pay off your debt in the shortest amount of time. As a result, you’ll pay the least amount of interest over the course of your loan.
- Graduate Repayment Plan– If your income is now low but you expect it to rise gradually over time, this plan may be for you.
- Extended Repayment Plan– If you need to make smaller monthly payments over a longer period of time than the Standard Repayment Plan allows, the Extended Repayment Plan may be perfect for you.
Borrowers who consolidate their loans into Direct Consolidation Loans are also eligible for the Income-Contingent Repayment Plan.
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Direct PLUS Loan Forgiveness
Under certain conditions, the federal government may forgive graduate and parent PLUS debts. Individuals must first consolidate using a direct consolidation loan in order to be eligible for parent PLUS debt forgiveness under Public Service Loan Forgiveness, or PSLF. They can then apply for an income-contingent repayment (ICR) plan.
The federal government may forgive a parent PLUS loan if —
- The educational institution where a student was enrolled closed before the programme was completed.
- Debtors (whether parents or students) pass away or become permanently incapacitated.
- Children dropped out of school, and neither they nor their parents received a reimbursement for the loan amount given to the educational institution.
- An individual’s eligibility for financial help was falsely confirmed by a school, or the individual met the criterion through identity theft.
Grad PLUS loans may also be forgiven by the government. Individuals who received financial aid must consolidate their loans and join an IDR, or income-driven repayment plan. A scheme like this allows students to repay their loans based on their family size and income. The government forgives the loan after 20 or 25 years.
Direct PLUS Loan vs Private Loan
PLUS and private loans might be perplexing for students who are unfamiliar with various types of financial aid. That being said, one must understand how these two loans differ in order to determine which one is best suited to their financial needs. So, here’s a table that shows the distinctions between private and PLUS loans.
| Private Loan | Direct PLUS Loan |
| Interest rates on private loans might be fixed or variable. | The direct PLUS loan interest rate remains constant throughout the repayment period. |
| The loan term spans from 5 to 20 years, depending on the lender. | Depending on the repayment option, the loan term can range from 10 to 25 years. |
| Borrowers are not required to complete the FAFSA form. | The FAFSA form must be completed |
| The origination cost varies between lenders. | Individuals must pay a 4.228% origination fee on loans made after September 30, 2020, but before October 1, 2023 |
Counselling for Adverse Credit History and PLUS Loans
The Department of Education made adjustments to the unfavourable credit history rules that are utilised in determining an applicant’s eligibility for a PLUS Loan based on final regulations published in October 2014. These changes affect both parent PLUS Loan applicants and graduate/professional student PLUS Loan applicants. All PLUS Loan credit checks completed on or after March 29, 2015, are subject to the credit criteria.
Among the changes are:
- Revised criteria for assessing eligibility for a Direct PLUS Loan The applicant has a poor credit history.
- Credit check expiration dates will be increased from 90 to 180 days.
- A new loan counselling requirement for applicants with a bad credit history who qualify for a PLUS Loan by showing mitigating circumstances for obtaining an endorser.
Must Read: Everything To Know About A Co-Applicant’s Role In Education Loan!
FAQs
The fees and interest rates on Direct Unsubsidized Loans are lower than those on PLUS Loans. In fact, the origination charge, or “loan fee,” on a Direct Unsubsidized Loan is one-quarter of the fee on a PLUS Loan. Unlike private student loans, Direct Unsubsidized Loans are not dependent on credit.
Unsubsidized Loans are loans that are not based on financial need and are available to both undergraduate and graduate students. The cost of attendance less any other financial aid (such as grants or scholarships) determines eligibility. During the in-school, deferment, and grace periods, interest is levied.
For students who need to borrow money to pay for education, federal direct student loans are the best alternative. Federal direct student loans, unlike private student loans, do not require a credit history or a co-signer. They also provide borrowers with greater repayment choices and protections against default.
This was all about Direct PLUS Loans. If you wish to know more about education loans for students who want to study abroad, or Indian Student Loans, subscribe to Fly.Finance or connect with our counsellors to make the process easier for you.
