With the cost of college continuing to rise, considering all your options to help you afford higher education—grants, scholarships, loans (federal and private), etc.—is key. There are an endless number of combinations of these, so it’s important to find a strategy that works for you.
One federal loan you may hear about is a Direct PLUS Loan. As with any of the options there are pros and cons to this federal student loan, and while it may be a good fit for some, it might not be right for you.
Here is our primer so you can get a better handle on what Direct PLUS Loans are all about.
What Is It?
PLUS loans are federal student loans that two different types of people can apply for in order to help pay for higher education: graduate and professional students, and the parents of dependent undergraduate students.
Unlike other Direct loans, you can borrow up to the total cost of attendance, minus financial aid already received. And, unlike other federal student loans, Direct PLUS Loans take into account credit history .
It’s important to note that a federal Direct PLUS Loan made to a parent borrower cannot be transferred to the child.
Overall, however, PLUS loans allow certain students or their parents to borrow enough money to fund whatever cost of college isn’t covered by other aid.
But keep in mind, PLUS loans are some of the highest interest loans offered by the government—significantly higher than federal loans offered directly to undergrads.
Applying for a PLUS Loan
To qualify as an individual student borrower, you must be enrolled at least half-time in an eligible program leading to a graduate or professional degree. For parents, you can qualify as the biological, adoptive, and in some cases, stepparent of a qualifying undergraduate student enrolled at least half-time.
The applicant must also meet the general eligibility requirements for federal student aid. You—and your child, if you are a parent applicant—must be U.S. citizens or eligible noncitizens. A credit check will also be conducted, and the U.S. Department of Education states that you must “not have an adverse credit history.”
Adverse credit history might seem like a broad term to disqualify someone, but the federal government outlines exactly how someone may still receive a Direct PLUS Loan, even if they have some credit issues.
Some borrowers get an endorser who does not have adverse credit history—someone who agrees to repay the Direct PLUS Loan if they do not. If you are a parent, the endorser can’t be the child for whom you are borrowing the money. The other option is to document if there are extenuating circumstances related to your credit history.
In order to apply, you or your student if you are a parent borrower must complete the FAFSA® . Once completed, schools at which students applied and were accepted will send award letters to students that include financial aid options for the upcoming school year, including PLUS loans if the student and/or parent qualifies.
However, some schools do not accept applications for PLUS loans via StudentLoans.gov, in which case you should check with that school’s financial aid office to figure out how to request a PLUS Loan .
Thinking about refinancing your Direct PLUS Loans?
Get started with SoFi student loan refinancing.
PLUS Loan Interest and Repayment
The current Direct PLUS Loan interest rate is 7.08% for the 2019-2020 school year. This is a fixed interest rate, which doesn’t change over the life of the loan.
If you want to do the math before accepting a PLUS loan to see if you’ll be able to manage the repayments, you could start by estimating that your repayments will be about $120 per month for every $10,000 borrowed—a rule of thumb that could work as a solid jumping-off point.
Then, multiply that by the years the degree is expected to take. For example, if you borrow $10,000 a year for four years, you can estimate a monthly payment of about $500 to meet the standard 10-year repayment period.
You might think that a private loan might be a better alternative to a Direct PLUS Loan, especially if parents want the debt to be paid for by the student upon graduation. However, keep in mind that many students don’t have the credit score or income to qualify for a private loan big enough to pay for school—and it’s likely parents (or another adult) will need to be a cosigner on a private loan.
Private loans might be more difficult to get, but they could offer lower interest rates and fees. There is a loan fee for Direct PLUS Loans: a percentage of the loan amount which is deducted from each loan disbursement.
If you are a graduate or professional student, you do not have to make any PLUS loan payments if you are enrolled at least half-time in school, plus you have a six-month grace period after you graduate or leave.
For parent borrowers, you will be expected to start making payments on a Direct PLUS Loan once it’s been fully paid out. But, parents may request a deferment while their child is enrolled in school or six months after, in certain circumstances.
PLUS loans can be repaid under the Graduated Repayment Plan, where payments start lower and then gradually increase, over a period of 10 years. There is also an Extended Repayment Plan, where you can make either fixed or graduated monthly payments for up to 25 years—you must have more than $30,000 in Direct Loan debt to qualify.
PLUS loans are not eligible for most income-driven repayment plans. However, if you consolidate your PLUS loan (or loans) and switch over to a federal Direct Consolidation Loan , that new loan can be eligible for an income-contingent plan. Income-contingent repayment is based on the borrower’s income and family size. You can learn more about federal repayment plans at the the Department of Education’s website .
Refinancing Direct PLUS Loans
When thinking about repayment, it’s could be worth considering refinancing student loans, including PLUS loans. Refinancing is, potentially, a better long-term solution for some PLUS loan borrowers, especially if they do not qualify for income-driven repayment or other federal benefits, which are lost when refinancing with a private lender.
A longer term from a private lender, such as SoFi, could help free up some money in your monthly budget, or there could be the option to shorten the overall repayment term at a lower interest rate.
Refinancing student loans through a private lender offers the opportunity to consolidate multiple student loans, federal and/or private, into a single loan with a single payment and (ideally) a lower interest rate.
Loan repayment terms vary based on the lender, and terms and interest rates vary based on financial factors like credit history, income, and more.
It is important to note that if you refinance your student loans with a private lender, you will lose access to federal benefits such as student loan forgiveness, income-driven repayment options, and forbearance.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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