Everything you need to know about the Federal PLUS Loan
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 the 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.
- The Federal Parent PLUS Loan is available to parents of dependent undergraduate students
- The Federal Grad PLUS loan is available to graduate and professional school students
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.
An unsubsidized Loan
The Federal PLUS Loan is an unsubsidized loan. Interest begins accruing immediately after disbursement.
The federal government does not pay the interest on the Federal PLUS Loan.
If the interest is not paid as it accrues, it will be added to the loan balance (capitalized) when the loan enters repayment. This increases the amount of debt. After interest is capitalized, interest will be charged on the interest, causing the loan 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 interest rate is based on the last 10-year Treasury Note Auction in May.
The interest rate on the Federal PLUS Loan is the same for both Federal Parent PLUS Loans and Federal Grad PLUS Loans.
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||7.595%||7.079%|
Loan fees on Federal PLUS Loans
The loan fees on the Federal PLUS loan are about 4.0%, four times the loan fees charged on the Federal Stafford Loan.
Loan fees are charged based on the rate in effect on the date the loan is disbursed.
Loan fees are deducted from the loan disbursements. Borrowers may choose to have the loan fees added to the loan balance.
Loan 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
October 1, 2019 – September 30, 2020
October 1, 2018 – September 30, 2019
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.
Eligibility for Federal PLUS Loans
Borrowers of the Federal PLUS Loan must not have an adverse credit history.
Otherwise, there is no requirement that a PLUS loan borrower have good credit, such as a high credit score, minimum income threshold or low debt-to-income ratio.
The credit criteria for a PLUS loan are backward-looking, considering whether the borrower has had financial difficulty in the past. The PLUS loan does not consider the borrower’s future ability to repay the debt.
As with Federal Stafford Loans, the student must be enrolled at least half-time 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 Federal Student Aid (FAFSA) is also required before the student or parent can receive any federal education loans.
To be eligible to borrow through the Federal Parent PLUS Loan 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 Federal Parent 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 Federal Parent PLUS loan.
The student and parent must also satisfy other general eligibility requirements for federal student aid, including citizenship status, student enrollment in an eligible degree or certificate program, and neither student nor parent in default on a federal student loan or grant overpayment.
How to Apply for Federal PLUS Loans
To obtain a Federal PLUS Loan, talk to the college’s financial aid office. The Federal PLUS Loan is disbursed through the college financial aid office, so they administer the application process and determine the maximum amount you can borrow. They will ask you to complete a PLUS loan application at the Studentaid.gov web site.
PLUS Loan borrowers will also have to sign a Master Promissory Note (MPN) at Studentaid.gov to obtain a Federal PLUS Loan. The Master Promissory Note is good for a continuous period of enrollment at a specific college for a period of up to 10 years.
Disbursement of Federal PLUS Loans
The funds from a Federal PLUS Loan are sent from the federal government directly to the college. The college financial aid office then applies the loan funds 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 Federal Parent PLUS loan proceeds to the student.) The 30-day delay for first-time, first-year borrowers does not apply to Federal Parent PLUS Loans. Federal PLUS loans will generally be disbursed in two installments.
Repayment of Federal PLUS Loans
Repayment of Federal PLUS Loans begins within 60 days of full disbursement. However, parents may choose to delay the start of repayment until the end of the six-month grace period after the student graduates or drops below half-time enrollment. Repayment can also be deferred while the parent borrower of a Federal Parent PLUS Loan is enrolled at least half-time in college. Interest will accrue and will be added to the loan balance if it isn’t paid as it accrues.
Parent borrowers of Federal PLUS loans are not directly eligible for an income-driven repayment plan. However, if the loans entered repayment on or after July 1, 2006 and are included in a Federal Direct Consolidation Loan, the consolidation loan is eligible for income-contingent repayment (ICR). This may also make the Federal PLUS loan eligible for public service loan forgiveness. Otherwise, Federal Parent PLUS loans are eligible for standard 10-year repayment, extended repayment and graduated repayment.
Note that Congress may close this ICR loophole for the Parent PLUS loans in the future.
Federal Grad PLUS loans are eligible for all the repayment plans, including all the income-driven repayment plans.
Parents cannot transfer a Federal Parent PLUS loan to the student. However, nothing stops a parent and student from having a side agreement in which the student agrees to make the payments on the Federal Parent PLUS Loan. But, students need to be careful to avoid borrowing too much.
Borrowers who sign up for auto-debit, where the monthly loan payments are automatically transferred from the borrower’s bank account to the lender, may receive a 0.25% interest rate reduction as an incentive.
Loan cancellation of Federal PLUS Loans
Federal PLUS loans are eligible for discharge upon the death or total and permanent disability of the borrower. In addition, Federal Parent PLUS loans may be discharged upon the death (but not disability) of the student on whose behalf the loan was borrowed. Death and disability discharges of federal and private student loans are tax-free since January 1, 2018.
Federal PLUS loans are also eligible for other loan 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 loan forgiveness, such as public service loan forgiveness, which requires working in a specific occupation for a specified period of time while repaying the loans.
Alternatives to the Federal PLUS Loan
If the student has exhausted eligibility for the Federal Stafford Loan, the alternatives to the Federal PLUS Loan include private student loans and private parent loans. Generally, private loans require a creditworthy cosigner, which is usually the parent.