Parents of dependent undergraduate students can apply for a Federal Direct PLUS Loan to help cover the family’s share of college costs, beyond the financial aid package. Before applying for a Parent PLUS loan, it is important to understand how your credit history affects loan eligibility. Even if you do have bad credit, that does not mean you are automatically ineligible or unable to change that status.
Here’s what you need to know about PLUS loan credit requirements and how you can secure this type of loan even with bad credit.
Parent PLUS loan eligibility and credit history
Federal Direct Parent PLUS Loans are available to parents of dependent undergraduate students. Under the eligibility requirements, the loan applicant cannot have an adverse credit history. An adverse credit history is determined by examining the borrower’s credit report for the past two years and five years.
A borrower has an adverse credit history if the borrower’s credit report includes total debt of $2,085 or more that is at least 90 days delinquency.
A borrower has an adverse credit history if the borrower’s credit report includes total debt of $2,085 or more that has been sent to collections or written off in the past two years.
A borrower has an adverse credit history if any of the following appears on the credit report as occurring within the past five years:
- Default determination
- Bankruptcy discharge
- Tax lien
- Wage garnishment
- Write-off of federal student aid debt
Correct errors in your credit report
Don’t wait to find out whether you have an adverse credit history by applying for a Parent PLUS loan. Check your credit report in advance. You are entitled to receive a free copy of your credit report at annualcreditreport.com every 12 months from Equifax, Experian, and TransUnion, the three national credit reporting agencies.
Carefully review your credit report for derogatory marks. These marks are what will determine if your credit history is adverse or not. If you see any derogatory marks you believe were made in error, you can dispute those errors with the credit reporting companies.
If you have a low FICO credit score, but you do not have any of the adverse credit criteria, you are eligible for a Parent PLUS loan. The Parent PLUS loan does not depend on credit scores or debt-to-income ratios.
How to get a Parent PLUS loan despite an adverse credit history
If you do have adverse credit history, there are several steps you can take to still qualify for a Parent PLUS loan.
- Repair your credit. Adverse credit does not have to be permanent. If possible, you can make payments on delinquent accounts and bring them up-to-date, curing the delinquency. Afterward, your credit score may still be low, but you might no longer have an adverse credit history, allowing you to qualify for a Parent PLUS Loan.
- Appeal the adverse credit history determination. The events that lead to adverse credit can be beyond your control. If there are extenuating circumstances, you may be able to appeal the adverse credit history determination. Extenuating circumstances can include errors in your credit report, the derogatory mark was reversed or ended, the debt was paid in full or satisfactory repayment arrangements have been made, the debt was included in a Chapter 13 bankruptcy, the debt was refinanced, and the debt was assigned to your ex-spouse in the divorce decree. Gather documentation relating to the extenuating circumstances that led to the adverse credit history. The U.S. Department of Education will then make a determination about your eligibility.
- Find an endorser. If you are unable to appeal the adverse credit determination or repair your credit, you have the option of using an endorser. An endorser, much like a cosigner, is someone who agrees to repay the Parent PLUS Loan if you are unable to do so. Endorsers need to undergo a credit check and cannot have adverse credit history. The endorser cannot be the child on whose behalf the Parent PLUS Loan is borrowed.
If you do gain eligibility through the appeals process or with the help of an endorser, you will need to take one more step, PLUS Loan Credit Counseling, before securing the loan.