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Federal Direct PLUS Loans Review

Nov. 8, 2018
Loans, Student Loans
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The direct PLUS loan is a federal student loan that can be taken out by parents to help pay for their child’s college education, or by graduate and professional degree students. PLUS loans are more like private loans than they are like other types of federal loans. They require a credit check; have higher interest rates and fees; and, for parents, come with fewer repayment options.

  • Parents should take out PLUS loans only if they need the limited consumer protections these loans offer. Some parents may receive a lower interest rate through a private lender; shop around for a private loan before committing to a PLUS loan.

» MORE: Compare parent loans: PLUS and private

768px-US-DeptOfEducation-Seal.svg
Type of loanFederal student loan
NerdWallet rating4.5 stars out of 5
4.5 out of 5.0 stars
Good forGraduate students who need to borrow beyond the federal unsubsidized loan limit; parents who want the safety net federal loans offer
Interest ratesFixed rate: 7.6%
Rates for the 2018-19 school year
Loan terms10 to 25 years once repayment begins, depending on the plan
Loan amountsTotal cost of attendance minus other financial aid
Apply now for graduate PLUS after filling out the FAFSA

 

Apply now for parent PLUS after filling out the FAFSA

Is a federal direct PLUS loan right for you?

NerdWallet recommends federal student loans over private loans in almost all cases. But PLUS loans have some features that may make a private loan a more desirable option. As a general rule, take out student loans in this order:

  1. Choose federal subsidized and unsubsidized loans first. As a parent, that means your child will borrow as much as they need in federal loans in their own name, up to the maximum. As a graduate student, that means taking out the maximum in unsubsidized federal loans.
  2. Look into the interest rates you’d likely receive for private loans. Since these are based on credit history, borrowers with good or excellent credit will get the best rates. Private loans have limited repayment flexibility. But if you think you’ll be able to pay them off quickly or won’t need the option to postpone or lower payments, they may be cheaper.
  3. Take out PLUS loans if your credit isn’t strong enough to get a low-interest private loan, or if you plan to qualify for Public Service Loan Forgiveness. Use PLUS loans to fill a gap after subsidized and unsubsidized loans, grants, work-study and scholarships have been applied. Borrow as little as you can manage.

» MORE: Compare graduate student loans

Here’s how PLUS loans differ from other types of federal loans:

  • PLUS loan interest rates are higher: 7.6% compared with 6.6% for unsubsidized graduate student loans.
  • PLUS loans have an origination fee of 4.264%, which is deducted from the loan money you receive. The fee for subsidized and unsubsidized loans is 1.066%.
  • PLUS loans require a credit check.
  • Parents who take out PLUS loans have very limited repayment options. They don’t have access to most income-driven repayment plans — only income-contingent repayment, which caps monthly payments at 20% of income.
  • There is a limit to the amount of subsidized and unsubsidized loans you can take out, depending on your year in school. You can take out PLUS loans, however, to cover the entire cost of attendance. While this may sound helpful, it could leave you with an overwhelming amount to repay.

» MORE: NerdWallet’s 2018-19 FAFSA guide

Can you qualify?

  • Minimum credit score: None, but you won’t qualify if you have “adverse credit history.” That means you have debt payments of more than $2,085 that are 90 or more days late, or that went into collections in the past two years. You also won’t be eligible if you declared bankruptcy or went into foreclosure, among other events, in the past five years.

» MORE: Are you eligibile for a parent PLUS loan?

If you don’t qualify, you can still get a PLUS loan with an endorser, commonly known as a co-signer, or by documenting the circumstances of your adverse credit history.

If a parent borrower is denied based on adverse credit history and no endorser is available, the student may be eligible for additional unsubsidized loans.

  • Minimum income: Income is not assessed
  • Education requirements: Enrollment at an eligible Title IV college or career school
  • Citizenship requirements: U.S. citizens and eligible noncitizens

How to apply for a federal student loan

PLUS borrowers must go through an additional step beyond submitting the Free Application for Federal Student Aid, known as the FAFSA. Here’s what to do:

  1. Submit the FAFSA first. It’s easiest to file online using your Federal Student Aid ID. Learn how to complete it based on your individual situation with NerdWallet’s FAFSA guide.
  1. Check with your school how to proceed next. Most will ask you to apply for PLUS loans on studentloans.gov, but some may have other requirements.
  1. Apply for either a parent PLUS loan or a graduate PLUS loan online. The application must be completed in one session, so gather the documents in the “What do I need?” section first.
  1. On the application, request a deferment while the student is in school and for the six months after graduation. Otherwise, you’ll be required to make payments within 60 days after you receive the last loan disbursement.
  1. Make sure you’ve lifted any credit freezes you’ve set up at the credit bureaus. You won’t be able to go through the required credit check otherwise. Here’s how to unfreeze your credit.
  1. Sign a Master Promissory Note and attend entrance counseling if you’re a first-time graduate PLUS loan borrower.
Apply now for graduate PLUS after filling out the FAFSA

 

Apply now for parent PLUS after filling out the FAFSA

More details

General repayment options

Graduate PLUS loans come with the same repayment options as subsidized and unsubsidized loans: repayment plans based on a 10- to 25-year timeline, and plans that tie payments to your income.

» MORE: Estimate monthly payments using a parent PLUS loan calculator

Parent PLUS loans, however, only come with the following options:

Your payments are fixed at a level in order to pay off the loan in 10 years.
Your payments are lower initially and increase, typically every two years, in order to pay off the loan in 10 years.
Your payments are fixed or graduated in order to pay off the loan in 25 years.
You must consolidate parent PLUS loans into a direct consolidation loan in order to make it eligible for income-contingent repayment, which caps the bill at 20% of income. This is the best plan to use if you plan to receive forgiveness under the Public Service Loan Forgiveness program.

 

PLUS loans also offer the same generous deferment and forbearance options, and many of the same loan forgiveness and discharge programs, as subsidized and unsubsidized loans. Notably, however, PLUS loans cannot be forgiven under the Teacher Loan Forgiveness program.

» MORE: How to refinance parent PLUS loans

Federal student loan FAQs

Can I apply with a co-signer? Yes. If you have adverse credit history, you can use an endorser to get a PLUS loan.

Can I qualify if I’ve filed for bankruptcy in the past? You will be considered to have adverse credit history if you filed for bankruptcy in the last five years. But you can use an endorser or document the circumstances of the bankruptcy in order to get a loan.

Can I qualify if I don’t go to a Title IV-accredited school? No.

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