What are PLUS Loans?

Parent Loan for Undergraduate Students (PLUS Loans) are a type of federal student loan offered by the U.S. Department of Education. These loans are intended to help parents of undergraduate students or graduate/professional students pay for college when other forms of financial aid, like grants or scholarships, don’t cover the full cost of attendance. PLUS loans come in two variations: Parent PLUS Loans and Graduate PLUS Loans, each with specific eligibility requirements and repayment terms.

Types of PLUS Loans

There are two primary types of PLUS Loans:

1. Parent PLUS Loans: These are designed for parents of dependent undergraduate students. Parents can borrow money to help pay for their child’s education expenses that are not covered by other financial aid. This loan is under the parent’s name, meaning the parent is responsible for repayment.
2. Graduate PLUS Loans: This type of loan is available to graduate and professional students. Unlike the Parent PLUS Loan, the student is the borrower and is responsible for repaying the loan. Graduate students must meet certain credit requirements to qualify.

Eligibility Requirements

Parent PLUS Loans Eligibility:
To be eligible for a Parent PLUS Loan, several conditions must be met:

• The applicant must be the biological or adoptive parent (or in some cases, a stepparent) of a dependent undergraduate student.
• The student must be enrolled at least half-time in an eligible program at a qualifying school.
• Both the parent and the student must be U.S. citizens or eligible noncitizens, and neither should be in default on federal student loans.
• Parents must meet basic credit requirements. While the eligibility requirements aren’t as strict as private loans, a credit check is conducted. Parents with adverse credit history may still qualify by obtaining an endorser (a cosigner) or demonstrating extenuating circumstances related to their credit history.

Graduate PLUS Loans Eligibility:
For Graduate PLUS Loans, eligibility is somewhat similar to that of Parent PLUS Loans:

• The borrower must be a graduate or professional student enrolled at least half-time in a qualifying school.
• The applicant must meet basic credit requirements, and as with Parent PLUS Loans, borrowers with adverse credit history can still qualify with an endorser or documentation of extenuating circumstances.
• The borrower must also be a U.S. citizen or eligible noncitizen, and in good standing with federal student aid programs.

Loan Amounts

PLUS Loans allow parents and graduate students to borrow up to the full cost of attendance minus any other financial aid received. The cost of attendance includes tuition, fees, room and board, textbooks, supplies, and other school-related expenses. Schools determine the cost of attendance, so the maximum PLUS Loan amount will vary based on the student’s institution and their financial aid package.

Interest Rates and Fees

Interest rates for PLUS Loans are set annually by Congress but remain fixed for the life of the loan once disbursed. The rate is generally higher than the interest rate for federal student loans such as Direct Subsidized and Unsubsidized Loans, but it is usually lower than rates for private student loans. PLUS Loan interest accrues immediately upon disbursement.

For loans disbursed between July 1, 2023, and June 30, 2024:

• The Parent PLUS Loan interest rate is 8.05%.
• The Graduate PLUS Loan interest rate is also 8.05%.

In addition to interest, PLUS Loans carry an origination fee, which is deducted from the loan amount before disbursement. For loans first disbursed between October 1, 2023, and October 1, 2024, the origination fee is 4.228%.

Repayment Options

Repayment Terms for Parent PLUS Loans:
Repayment for Parent PLUS Loans begins as soon as the loan is fully disbursed, but parents can request to defer payments while their child is in school and for six months after they graduate or drop below half-time enrollment. Interest, however, continues to accrue during deferment.

Repayment Terms for Graduate PLUS Loans:
Similar to Parent PLUS Loans, Graduate PLUS Loan borrowers can defer payments while they are enrolled at least half-time and for six months after leaving school. Interest accrues during this deferment period, meaning the total balance may grow if payments aren’t made during this time.

Repayment Plans Available:
PLUS Loans offer several repayment plans to help manage payments based on financial circumstances:

1. Standard Repayment Plan: This plan sets fixed monthly payments over 10 years. It results in higher monthly payments but allows borrowers to pay off their loans faster, accruing less interest.
2. Graduated Repayment Plan: Payments start lower and gradually increase over time, usually every two years. This plan also lasts for 10 years, but you will pay more in interest because of the lower initial payments.
3. Extended Repayment Plan: Borrowers can extend their loan term up to 25 years, reducing monthly payments but increasing the total interest paid over the life of the loan. This plan is available to borrowers with more than $30,000 in Direct Loan debt.
4. Income-Contingent Repayment (ICR): Parent PLUS borrowers can access the ICR plan by consolidating their loans into a Direct Consolidation Loan. Payments are calculated based on income, family size, and the total loan amount. This plan extends payments for up to 25 years, and any remaining balance after that period may be forgiven.
5. Income-Driven Repayment Plans (IDR): Graduate PLUS Loan borrowers may qualify for income-driven repayment plans, including Income-Based Repayment (IBR), Pay As You Earn (PAYE), or Revised Pay As You Earn (REPAYE). These plans base monthly payments on the borrower’s income and family size and extend the repayment period to 20 or 25 years. Any remaining balance after that period may be forgiven.

Loan Forgiveness Options

Borrowers of PLUS Loans may be eligible for loan forgiveness under specific circumstances, particularly through the Public Service Loan Forgiveness (PSLF) program. To qualify for PSLF:

• The borrower must work full-time for a qualifying government or nonprofit organization.
• They must make 120 qualifying monthly payments under a qualifying repayment plan (such as IBR, PAYE, or REPAYE).
• Only payments made after October 1, 2007, count toward the 120 required for forgiveness.

It’s important to note that Parent PLUS Loans must be consolidated into a Direct Consolidation Loan for the parent to qualify for PSLF under the ICR plan.

Pros and Cons of PLUS Loans

Like any loan program, PLUS Loans come with benefits and drawbacks. Understanding these can help borrowers make an informed decision.

Pros:

• Higher borrowing limits: PLUS Loans allow borrowers to cover the full cost of attendance, which can be crucial for families or graduate students facing large financial gaps.
• Flexible repayment plans: Several repayment options are available, allowing borrowers to choose the plan that fits their financial situation best.
• Forgiveness options: Some borrowers may qualify for loan forgiveness through PSLF or income-driven repayment plans.

Cons:

• Higher interest rates: PLUS Loans carry higher interest rates than other federal student loans, which means more expensive borrowing.
• Credit check requirement: Borrowers must pass a basic credit check, which can pose a challenge for those with adverse credit history.
• Accruing interest during deferment: Interest continues to accrue during deferment periods, increasing the total repayment amount if left unpaid.

Alternatives to PLUS Loans

Before committing to a PLUS Loan, it’s essential to explore other financial aid options that may offer better terms. Some alternatives include:

1. Direct Subsidized and Unsubsidized Loans: These loans have lower interest rates than PLUS Loans and do not require a credit check. Undergraduate students are eligible, and subsidized loans do not accrue interest while the student is in school.
2. Private Student Loans: Private loans are available through banks and other lenders. These loans may offer lower interest rates depending on credit history, but they often come with fewer borrower protections and flexible repayment options compared to federal loans.
3. Scholarships and Grants: Students and parents should seek out scholarships and grants, which do not need to be repaid. Many schools, private organizations, and government agencies offer these funds based on merit, need, or other criteria.

The Bottom Line

PLUS Loans can be a useful tool for parents and graduate students seeking to cover education costs that aren’t met by other forms of financial aid. With flexible repayment plans, the ability to borrow up to the full cost of attendance, and options for loan forgiveness, they offer significant advantages. However, the higher interest rates, credit check requirements, and accruing interest during deferment are key factors to consider. Before taking out a PLUS Loan, borrowers should compare all available financial aid options, carefully weigh the pros and cons, and choose the loan or repayment plan that aligns with their long-term financial goals.