A Direct PLUS Loan is a type of unsubsidized federal student loan that can be made to graduate students or parents of a dependent undergraduate student.
Direct PLUS Loans can help pay for education costs that aren’t covered by other types of financial aid. As they have higher interest rates than other types of federal loans, it’s generally recommended that a student exhaust all of their Direct Loan options before considering a Direct PLUS Loan.
As you plan how to pay for your education, here’s what to know about Direct PLUS Loans to decide if this option is right for you.
What Is a Federal Direct PLUS Loan?
After pursuing financial aid options that don’t need to be paid back (such as grants, scholarships, or work-study programs), many students take out federal student loans to help pay for the cost of school.
There are several types of federal student loans from the William D. Ford Federal Direct Loan Program. Direct Loans (also known as Stafford Loans) can be subsidized for undergraduate students with financial need — meaning that the federal government will pay the loan interest while a student is in school at least half-time and during a grace period after graduating or during a period of deferment.
Direct Loans can also be unsubsidized for both undergraduate or graduate students. With a Direct Unsubsidized Loan, the borrower is responsible for all of the interest that accumulates on the loan. These loans are not dependent on financial need, but there is a cap on the amount a student can borrow.
So what is a Direct PLUS Loan? Direct PLUS Loans can be made to graduate students or parents of dependent undergraduate students to help meet the remaining costs of school.
Types of Federal PLUS Loans
As mentioned, Direct PLUS Loans are unsubsidized federal student loans that two groups of people can apply for to help pay for higher education that isn’t covered by other types of financial aid: graduate and professional students or parents of a dependent undergraduate student.
When a Direct PLUS Loan is made to parents of an undergraduate student, it’s often referred to as a parent PLUS loan. When made to a graduate or professional student, it’s called a grad PLUS loan.
Keep in mind that PLUS loans are some of the highest interest loans offered by the government — significantly higher than federal loans offered directly to undergrads — so it’s worth it to pursue other federal options first.
Eligibility for Federal Parent PLUS Loans
Parents can qualify for a parent PLUS loan as the biological, adoptive, and in some cases, stepparent of a qualifying undergraduate student enrolled at least half-time. It’s important to note that a federal Direct PLUS Loan made to a parent borrower cannot be transferred to the child.
Both parent and child must be U.S. citizens or eligible noncitizens and meet the eligibility requirements for federal student aid.
Unlike other types of federal loans, Direct PLUS Loans consider your credit history, and the requirements state that the borrower must “not have an adverse credit history.”
Some borrowers with credit issues may still be able to qualify if they meet certain additional eligibility requirements, such as having an endorser on the loan. Another option is to document if there are extenuating circumstances related to the adverse credit history.
Eligibility for Federal Grad PLUS Loans
When a Direct PLUS Loan is made to a graduate or professional student, it’s commonly called a grad 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.
As with parent PLUS loans, the borrower must meet the eligibility requirements for federal financial aid and can’t have an adverse credit history.
Interest Rates on Federal PLUS Loans
Direct PLUS Loans have some of the highest interest rates of all federal student loans. Interest rates on federal student loans are fixed for the life of the loan and the rate is set by Congress each year.
For the 2022-2023 school year, the interest rate on Direct Subsidized or Unsubsidized Loans for undergraduates is 4.99%, the rate on Direct Unsubsidized loans for graduate and professional students is 6.54%, and the rate on Direct PLUS Loans is 7.54%.
Is the Federal Direct PLUS Loan Subsidized or Unsubsidized?
Direct PLUS Loans are unsubsidized federal loans, meaning that the interest accumulates on the loan at all times.
If you are a graduate or professional student, you do not have to make any grad PLUS loan payments if you are enrolled at least half-time in school, and there is also a six-month grace period after you graduate or leave.
If you don’t pay the interest on a federal unsubsidized loan during these periods, the interest on the loan is capitalized and added to the total principal amount of the loan. This amount will also accrue interest and increase the overall amount you owe.
Parent borrowers are expected to start making payments on a Direct PLUS Loan once it’s been fully paid out. But in certain circumstances parents may request a deferment while their child is enrolled in school or six months after.
Loan Fees on Federal PLUS Loans
There is a loan fee for Direct PLUS Loans. A percentage of the loan amount (currently about 4.2%) is deducted from each loan disbursement. This percentage is higher than that for Direct Loans (currently about 1%). Loan fees vary by the date they are disbursed.
Loan Limits on Federal PLUS Loans
Direct PLUS loans allow graduate students or parents to borrow enough money to fund the costs of school that aren’t covered by other aid.
Unlike other federal loans, you can borrow up to the total cost of attendance with a Direct PLUS Loan, minus financial aid already received. The student’s school sets the amount that a graduate student or parent can borrow through a Direct PLUS Loan.
How to Apply for Federal PLUS Loans
Before applying for a Direct PLUS loan, a student must fill out the FAFSA® — the Free Application for Federal Student Aid. The borrower will undergo a credit check and may need to participate in credit counseling if this is the first PLUS loan.
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 Direct PLUS loans if the student and/or parent qualifies.
If a school doesn’t accept applications for Direct PLUS Loans via the federal Student Aid website , contact the school’s financial aid office to find out how to apply.
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Recommended: FAFSA Guide
What to Do When Federal PLUS Loans Aren’t Enough
The amount that can be borrowed through Direct PLUS Loans is set by the student’s school and can’t exceed the total cost of attendance minus financial aid received. If you still need additional funds to cover other education-related costs, you may want to explore private loans.
Private loans can bridge the gap between what a student is able to borrow in federal loans and their remaining needs after accounting for aid such as scholarships or grants.
Your eligibility and the interest rate that you can get through a private loan will depend on factors like your credit score and income. Having a cosigner on your loan may help you secure more favorable terms.
Parents with strong credit and income may find lower interest rates on no-fee private parent student loans than on federal parent PLUS loans which, as a reminder, also come with an origination fee.
What to Do About Undergraduate School Loans
Direct PLUS loans are not eligible for most income-driven repayment plans. However, if you consolidate your PLUS loan (or loans) into a federal Direct Consolidation Loan, that new loan can be eligible for an income-contingent plan.
If you’re a graduate student and you have a high-interest rate on existing undergraduate loans or need to lower your monthly payment before grad school, it could be worth considering student loan refinancing. 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.
Refinancing may be a better long-term solution for some PLUS loan borrowers, especially if they do not qualify for income-driven repayment and are not planning to use other federal benefits. Keep in mind if you refinance federal loans, you lose access to federal benefits and protections, such as forgiveness, income-driven repayment plans, and forbearance.
Direct PLUS Loans are unsubsidized federal loans that can be made to graduate students or parents of a dependent undergraduate student. Known as grad PLUS loans or parent PLUS loans, these federal loans take your credit history into account. If you have an adverse credit history, there are certain eligibility requirements you’ll need to meet to qualify.
Direct PLUS Loans allow you to borrow up to the full cost of attendance for graduate school minus the amount of financial aid you receive from other sources. Since they have higher interest rates and a higher origination fee than other types of federal loans, you’ll likely want to pursue a federal Direct Unsubsidized Loan first.
Private student loans can bridge the gap between what a student is able to borrow in federal loans and their remaining needs after aid such as scholarships or grants is considered.
Parents or graduate students with strong credit and income may find lower interest rates on no-fee private student loans than on federal Direct PLUS Loans.
SoFi private student loans offer competitive interest rates for qualifying borrowers, flexible repayment plans, and no fees.
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