The U.S. Department of Education runs a loan program designed for parents of dependent university students to financially assist their children. The Direct PLUS loan (Parental Loan for Undergraduate Students) program is also intended for independent graduate or professional students.

Beginning in July 2010, all PLUS loan funding began to come (and still does) from the U.S. Federal Government under the Direct Loan program. Prior to this date funding was under the Federal Family Education Loan (FFEL) program and came from private lenders. (For more options on funding university, check out Student Borrowing: University Payment Plans Vs. Federal Student Loans.)

TUTORIAL: Student Loans

What Is a Direct PLUS Loan?

Parents of dependent undergraduate students (and graduate or professional students) can receive up to the total cost of their education minus any other financial aid (grants or scholarships) that they benefit from. The PLUS loan is not income dependent, but applicants will have to pass a moderate credit check. They can pass so long as they do not have an adverse credit rating, or failing that if they can prove extenuating circumstances or obtain a co-signer they will be accepted for a PLUS loan. Interest rates are fixed at 6.84% for the 2015-2016 student year, and both the student and the parents must fill out a FAFSA form to apply. Parent borrowers must also fill out a Direct PLUS Loan application and a Master Promissory Note (MPN). An MPN is a legal document that requires the parent to repay the loan. These forms are available at your school's financial aid department and in some cases online.

All funds from a PLUS loan must be applied towards education expenses, such as tuition, student fees, on campus lodging and food, books and more. Even the cost of a computer will qualify. Any remaining funds are sent to the parent (or the student if they are the borrower). Unlike other loan programs payments to repay the loan begin immediately, although a deferment on paying back the principal while the student is enrolled at least half time and during the six month (grace) period after leaving school is allowed. Interest payments must be made from day one or they will be capitalized (added to the principal to await the end of the six month grace period).

Maximum Loan Amount

There is no maximum that you can receive under the PLUS loan program, unlike the Federal Direct Loan and Perkins programs. (For more information, read College Loans: Private Vs. Federal.)

Eligibility

Direct PLUS loans have certain eligibility requirements that must be met before approval can be granted. These are as follows:

  • If the borrower is a parent, s/he must be the biological or adoptive parent (although in some cases they may be a stepparent).
  • Both the student and the parent must be U.S. citizens or eligible non-citizens.
  • Both the student and the parent must not be in default of other federal education loans.
  • The parent borrower must not have a bad credit history. If they fail the credit check they can still receive a loan if they can prove extenuating circumstances (determined on a case by case basis). They can also receive funding if they can get someone to co-sign the loan that can pass the credit check.
  • The student must be dependent and enrolled at least half-time in a school that participates in the Direct Loan program. You are considered dependent if you are less than 24 years of age, not married, have no dependents, are not a veteran or a professional or graduate student.

Disbursements and Fees

The Department of Education will send the funds directly to the school to be applied against the student's account. The school will receive the funds in two payments throughout the school year. All funds are to be used to pay for school expenses. Interest rate charges for PLUS loans are fixed at 6.84% for the 2015-2016 student year, and an additional 4.272% administration fee will be deducted each time a disbursement is made. (For some other alternatives to pay for school, see Last-Minute Strategies To Help Pay For College.)

Repayment Options

Parent borrowers may qualify for interest rate relief if they are members of the military on active duty. The interest rate may be capped at 6% in these cases, and the parent must request this relief from the U.S. Department of Education. Additionally, interest will be paid by the federal government (for up to five years) if the borrower is on active duty during war times or receiving special pay due to hostilities.

Payments must be made within 60 days of the first disbursement, although a deferment can be requested and if granted only the interest payments must be made (although these too can be capitalized if requested). Otherwise there are three repayment plans available: standard, extended and graduated. There are slight differences between these plans with amortization schedules from 10 to 25 years.

If you are having difficulty in paying back the funds under the terms of the loan agreement you can request forbearance or a deferment. In some rare cases, your loan may be canceled or forgiven completely. Under no circumstances can your parent loan be transferred to the student. (For help paying off any student loans, check out Student Loan Deferment: Live To Pay Another Day.)

Related Articles
  1. Credit & Loans

    A FICO-free Loan? See SoFi's Super Bowl Ad

    Non-bank lender SoFi will air its first TV ad during Super Bowl 50. Here's how it's challenging big banks by providing an alternative approach to loans.
  2. Credit & Loans

    Student Loan Forgiveness: A New Route

    DeVry (and other for-profit) students & grads, pay attention: An obscure direct-loan program reg could make it possible to have student loans forgiven.
  3. Economics

    What is the American Dream in 2016?

    The American Dream is still alive and well, but it looks very different than it used to.
  4. Credit & Loans

    Debt Forgiveness: How to Get Out of Paying Your Student Loans

    There are income-based plans and forgiveness for public-service employees. The latest wrinkle: loan forgiveness because the school defrauded you.
  5. Credit & Loans

    Student Loan Refinancing: The Pros and Cons

    To refinance your student loan or not? Here are the top pros and cons to consider.
  6. Credit & Loans

    Understanding Loans

    A loan is the act of giving money, property or other material goods to another party with the expectation of being repaid.
  7. Retirement

    Are Student Loans Putting Your Retirement At Risk?

    Can't think about saving for retirement because you are drowning in student loan debt? Here are some solutions.
  8. Budgeting

    3 Alternative Ways To Save for College

    The cost of college is skyrocketing at a time of record student loan debt. But there are ways to earn a college degree without traditional borrowing.
  9. FA

    Learn About the London Business School

    The London Business School is consistently ranked among the top business schools in the world. Students from more than 100 countries attend.
  10. Credit & Loans

    5 Tips to Lower Your Sallie Mae Payments

    Learn the essential tips on how to work with the Sallie Mae Corporation to lower the monthly payments on your private student loan.
RELATED FAQS
  1. Who is eligible for student loan forgiveness?

    Your eligibility for student loan forgiveness depends on the type of student loan in question. If you have a federal loan, ... Read Full Answer >>
  2. What’s the difference between the two federal student loan programs (FFEL and Direct)?

    The short answer is that one loan program still exists (Federal Direct Loans) and one was ended by the Health Care and Education ... Read Full Answer >>
  3. Can Sallie Mae loans be forgiven?

    Sallie Mae loans, similar to other private loans, cannot be forgiven. As of 2015, there is no option for private student ... Read Full Answer >>
  4. Can Sallie Mae loans be consolidated?

    Sallie Mae loans can be consolidated with other federal loans, but not with private loans. For federal loan consolidation, ... Read Full Answer >>
  5. How does Sallie Mae disburse funds?

    Sallie Mae is the number one provider of financial aid and student loans in the United States, servicing over 25 million ... Read Full Answer >>
  6. Do Sallie Mae loans go directly to your school?

    Sallie Mae is the biggest provider of financial aid and student loans in the United States. The company operates as a private ... Read Full Answer >>
Trading Center