Many parents each year will borrow Direct Parent PLUS Loans to help their child cover college expenses that are not covered by other financial aid. They differ from Direct Subsidized and Unsubsidized Loans in a number of ways. While similar to Direct Graduate PLUS Loans, they are also different on that front as well.
Here, we explore Direct Parent PLUS Loans so that you will have all of the information you need to make an informed decision when you apply for and accept financial aid to pay for your college education.
What is a Direct Parent PLUS Loan?
Direct Parent PLUS Loans are a special type of federal student loan created under the William D. Ford Federal Direct Loan Program. These loans are made available to eligible parents of dependent undergraduate students. They are designed to help families fill the gaps and pay for college expenses that are not covered by other forms of financial aid, such as Direct Subsidized and Unsubsidized Loans.
Because Direct Parent PLUS Loans are borrowed by the parent, and not the student, monthly payments typically begin even while the student is enrolled in school. That being said, you can request deferment, which will allow you to forgo making payments while:
- The student is enrolled at least half-time in school
- During the student’s six-month student loan grace period after leaving school
Any interest that accrues on the loan during this time must be paid after deferment ends. If it is not paid, it will be capitalized, or added to your loan principal, at which point it will begin accruing interest of its own.
Direct Parent PLUS Loans will begin accruing interest immediately after disbursement.
What is the interest rate on a Direct Parent PLUS Loan?
Federal student loan interest rates vary depending on the year in which they were disbursed. They are set by Congress.
Direct Parent PLUS Loans that were disbursed between July 1,2019 and July 1, 2020 carry an interest rate of 7.08%, which is higher than Direct Loans made directly to undergraduate students. Those disbursed between July 1, 2018 and July 1, 2019 carry an interest rate of 7.6%.
Do Direct Parent PLUS Loans have any fees?
In addition to interest, you will be charged a loan origination fee. This fee is a percentage of the total loan amount. The loan origination fee varies by year:
- For loans disbursed between October 1, 2018 and October 1, 2019 it is 4.248%
- For loans disbursed between October 1, 2019 and October 1, 2020 it is 4.236%
It is worth nothing that this is a substantially higher loan origination fee than is charged for undergraduate students who borrow loans directly.
How much can you borrow?
The total amount that a parent can borrow through a Direct Parent PLUS Loan will be equal to the total cost of their child’s attendance, minus any other financial aid that the child has received. Your child’s school will determine the cost of attendance.
Typically, your school will determine exactly how much you can borrow each year and notify you of this amount in your financial aid package.
Direct Parent PLUS Loan Eligibility
To qualify for a Direct Parent PLUS Loan, you must:
- Be the biological parent, or adoptive parent/step parent, of a dependent undergraduate student who is enrolled at least half time in a degree- or certificate-awarding program
- Not have an adverse credit history
- Meet general requirements for receiving financial aid, including citizenship requirements
Parents who have adverse credit history may still qualify for a PLUS Loan if they are able to obtain an endorsement from someone who does not have an adverse credit history. This is similar to having a cosigner. Additionally, if you are able to demonstrate extenuating circumstances that have led to your damaged credit history, you may be considered eligible.
How to Apply for a Direct Parent PLUS Loan
Unfortunately, if you need to apply for a Direct Parent PLUS Loan, there is a separate application process outside of the regular FAFSA application. Parents can complete an Direct PLUS Loan application here.
Direct Parent PLUS Loan Repayment Plans
When you borrow a Direct Parent PLUS Loan, the U.S. Department of Education is your lender. That being said, your loan will be serviced by one of 11 federal student loan servicers. Your servicer will accept your monthly payments, advise you of your repayment options, and otherwise manage your loan.
Borrowers with Direct Parent PLUS Loans are typically eligible to enroll in the following repayment plans:
- Standard Repayment Plan
- Graduate Repayment Plan
- Extended Repayment Plan
- Income-Contingent Repayment Plan (if consolidated)
If you would like to change the repayment plan on your Direct Parent PLUS Loan, simply contact your loan servicer.
Direct Parent PLUS Loan Refinancing and Consolidation
There is no federal student loan refinancing program. In order to refinance your Direct Parent PLUS Loan, you would need to turn to a private lender who would essentially convert your loan into a private loan. While this may bring benefits such as a lower interest rate or lower monthly payments, it also means that you will be losing certain benefits carried by federal loans, such as the ability to place your loans in deferment or forbearance. Therefore, it’s important to weigh the pros and cons of refinancing before you make a decision.
Student loan consolidation is a process in which you combine multiple federal student loans into a single new loan, called a Direct Consolidation Loan. This new loan’s balance will be the total of all of its component loans, added up. The interest rate that it carries will be the weighted average of all of the loans that make it up.
Direct Parent PLUS Loans can be consolidated under this program. If you consolidate your Parent PLUS Loans through the Direct Consolidation Program, you can be eligible for an additional repayment plan: The Income-Contingent Repayment Plan.
Direct Parent PLUS Loan History
The Higher Education Act of 1965 created the Federal Guaranteed Student Loan program, which made federally-backed student loans available to college students. This program was renamed the Robert T. Stafford Student Loan Program in 1988. Direct Parent PLUS Loans are managed by this program.
Alternatives to Direct Parent PLUS Loans
Because Direct Parent PLUS Loans carry higher interest rates and higher loan origination fees compared to loans borrowed directly by undergraduate students, generally speaking it is wise for students to exhaust all of their options before parents borrow additional funds in their own name, including Direct Subsidized Loans and Direct Unsubsidized Loans.
If you do not wish to borrow a Direct Parent PLUS Loan, or are perhaps ineligible, you may be able to borrow a private student loan to make up the difference. Private loans will typically be more expensive than a Parent PLUS Loan.