The Federal PLUS Loan is an unsubsidized federal education loan for graduate students and for parents of dependent undergraduate students. The Federal PLUS Loan, also known as a Federal Direct PLUS Loan, is available after a student exhausts eligibility for Federal Stafford Loans.
Two versions of the Federal PLUS Loan
There are two versions of the Federal PLUS Loan: the Federal Parent PLUS Loan and the Federal Grad PLUS Loan.
Other than the differences in the borrower, the purpose of the loan and some discharge provisions, the Parent PLUS and Grad PLUS loans are nearly identical. The Federal Grad PLUS Loan first became available on July 1, 2006, through an amendment to the Federal Parent PLUS Loan.
The federal government does not pay the interest on the .
If the interest is not paid as it accrues, it will be added to the balance (capitalized) when the enters . This increases the amount of debt. After interest is capitalized, interest will be charged on the interest, causing the to grow faster.
Interest Rates on Federal PLUS Loans
The interest rates on Federal PLUS Loans are fixed rates that change only for new loans each July 1. The new is based on the last 10-year Treasury Note Auction in May.
The is the same for both PLUS Loans and Federal Loans. on the
Keep in mind, however, that you are not required to pay interest or make payments on any during the current COVID-19 relief period. The relief period is in effect through at least September 30, 2021.
The interest rates are set according to this formula:
|Parent of Undergraduate Student||10-year Treasury + 4.6%||10.5%|
|Graduate Student||10-year Treasury + 4.6%||10.5%|
The most recent interest rates are:
|Parent of Undergraduate Student||5.30%||6.28%|
Fees on Federal PLUS Loans
borrowers pay an . The on the is about 4.2%, four times the fee on Federal Stafford loans.
fees are based on the rate in effect on the date the is disbursed. A is typically deducted proportionately from each , borrowers can also choose to have the fee added to their balance.
fees change each October 1, based on the federal budget.
The most recent fees are shown in this table.
|October 1, 2020 – September 30, 2021||4.228%|
|October 1, 2019 – September 30, 2020||4.236%|
|October 1, 2018 – September 30, 2019||4.248%|
Loan limits on Federal PLUS Loans
The Federal PLUS Loan has an annual limit equal to the college’s cost of attendance, minus other aid received. The Federal PLUS Loan does not have an aggregate loan limit. The student’s college will determine how much the parents can borrow through the Federal Parent PLUS loan or a graduate student can borrow through the Federal Grad PLUS loan.
If the parent of a dependent undergraduate student is denied a Federal PLUS Loan, the student becomes eligible for higher unsubsidized Federal Stafford Loan limits, the same limits as are available to independent undergraduate students.
Since the Federal Parent PLUS Loan allows a parent to borrow almost unlimited amounts of money for their children, they need to be careful to avoid over-borrowing. Parents should borrow no more for all their children than their annual income. If total Federal Parent PLUS Loan debt is less than the parent’s annual income, the parents should be able to repay the loans in 10 years or less. If retirement is less than 10 years away, they should borrow proportionately less money. For example, if retirement is in just 5 years, the parents should borrow half as much.
See also: Complete Guide to Parent Loans
Eligibility for Federal PLUS Loans
Otherwise, borrowers are not required to have good credit, such as a high credit score, minimum income threshold or low debt-to-income ratio.
The credit criteria for a are backward-looking, considering whether the has had financial difficulty in the past. The does not consider the ‘s future ability to repay the debt.
As with Federal Stafford Loans, the student must be enrolled at least half-time during the and be making satisfactory academic progress , such as maintaining at least a 2.0 GPA on a 4.0 scale in college. Filing the Free Application for (FAFSA) is also required before the student or parent can receive any federal education loans.
To be eligible to borrow through the program, a parent must be a biological or adoptive parent of the undergraduate student or married to the student’s parents. Thus, stepparents are eligible to borrow PLUS loans only while they are married to the student’s biological or adoptive parent. If the stepparent’s spouse dies, or the stepparent gets divorced, the stepparent is no longer eligible for the .
The student and parent must also satisfy other general eligibility requirements for , including citizenship status, student enrollment in an eligible degree or certificate program, and neither student nor parent in default on a or grant overpayment.
How to Apply for Federal PLUS Loans
To obtain a , talk to the college’s office. The is disbursed through the college office, so they administer the application process and determine the maximum amount you can borrow. They will ask you to complete a at the Studentaid.gov web site. You may be required to complete .
The federal government sends the funds from a directly to the college. The college office then applies the to tuition and fees (plus room and board if the student is living in college housing).
Any remaining credit balance is normally “refunded” to the student or parent within 14 days. (Parents can authorize the college to refund any leftover proceeds to the student.) The 30-day delay for first-time, first-year borrowers does not apply to PLUS Loans. Federal PLUS loans will generally be disbursed in two installments.
of a is enrolled at least half-time in college. Interest will accrue and will be added to the balance if it isn’t paid as it accrues. of Federal PLUS Loans begins within 60 days of full . However, parents may request a from their to delay the start of until the end of the six-month grace period after the student graduates or drops below half-time enrollment. can also be deferred while the
A is not directly eligible for an income-driven . However, if the entered on or after July 1, 2006 and is included in a Federal Direct Consolidation , the consolidation is eligible for income-contingent (ICR). This may also make the eligible for public service forgiveness. Otherwise, PLUS loans are eligible for standard 10-year , extended and graduated .
Note that Congress may close this ICR loophole for the Parent PLUS loans in the future.
Federal loans are eligible for all the plans, including all the income-driven plans.
Parents cannot transfer a to the student, unless they refinance with a private lender, giving up federal loan protections. However, nothing stops a parent and student from having a side agreement in which the student agrees to make the payments on the . But, students need to be careful to avoid borrowing too much.
Borrowers who sign up for auto-debit, where the monthly payments are automatically transferred from the ‘s bank account to the lender, may receive a 0.25% reduction as an incentive.
Federal Direct PLUS loans are eligible for discharge upon the death or total and permanent disability of the PLUS loans may be discharged upon the . In addition, death (but not disability) of the student on whose behalf the was borrowed.
Federal PLUS loans are also eligible for other forgiveness, such as public service forgiveness, which requires working in a specific occupation for a specified period of time while repaying the loans. cancellation provisions, such as the closed school discharge, identity theft discharge, bankruptcy discharge, unpaid refund discharge and false certificate discharge. They may be eligible for
Alternatives to the
If the student has exhausted eligibility for the , the alternatives to the include private student loans and private parent loans . Generally, private loans require a creditworthy cosigner, which is usually the parent.