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If you’re a parent or graduate student who needs financial assistance for college, you might have heard about Direct PLUS Loans. These loans can help cover the cost of education after other financial aid options have been exhausted, but there’s a lot to know before you decide whether they’re right for you.
Table of Contents
What Are Direct PLUS Loans?
Direct PLUS Loans are federal loans that graduate students and the parents of dependent undergraduate students can use to help cover the costs of higher education. They’re available through the U.S. Department of Education and offer fixed interest rates and flexible repayment options.
Direct PLUS Loan Requirements
To be eligible for a Direct PLUS Loan, you must meet the following criteria:
- Be a graduate student or the parent of a dependent undergraduate student
- Be a U.S. citizen or eligible noncitizen
- Not have an adverse credit history (more on that later)
- Meet the general eligibility requirements for federal student aid
Applying for Direct PLUS Loans
If you’re interested in a Direct PLUS Loan, you’ll need to complete the following steps:
- Complete the Free Application for Federal Student Aid (FAFSA)
- Log in to the Federal Student Aid website using your FSA ID
- Select “Apply for a Direct PLUS Loan” and complete the application
- If you’re a parent applying on behalf of your child, your child must also complete additional steps
- If you’re approved, you’ll need to complete the Master Promissory Note (MPN) agreeing to the terms of the loan
It’s important to note that with Direct PLUS Loans, you’re not limited to borrowing only the amount of your student’s remaining cost of attendance. You can apply to borrow up to the full cost of attendance, minus any other financial aid received.
Interest Rates and Fees
Direct PLUS Loans have a fixed interest rate set by the federal government. The rate for loans disbursed on or after July 1, 2021, and before July 1, 2022, is 6.28%. There’s also an origination fee, which is a fee charged by the government to process your loan. The fee for loans disbursed on or after Oct. 1, 2020, and before Oct. 1, 2021, is 4.228% of the loan amount.
Credit Requirements
One common question about Direct PLUS Loans is whether you need good credit to be approved. The answer is that you can still be approved with less-than-perfect credit, but you can’t have an adverse credit history. This includes having a current delinquency of 90 or more days on any debt or having had any of the following happen in the past five years:
- A default determination
- Bankruptcy discharge
- Foreclosure
- Repossession
- Tax lien
- Wage garnishment
- Write-off of a federal student aid debt
Tips for Borrowing Wisely
When considering a Direct PLUS Loan, it’s important to borrow only what you need and to consider how the loan will affect your future finances.
- Consider other financial aid options first, such as grants and scholarships
- Calculate the total cost of the loan with interest and fees and compare with other loan options
- Think about how the loan will affect your ability to save for retirement or other financial goals
- Remember that the loan will need to be repaid, so you’ll want to plan to put a portion of your income toward payments after graduation
The Bottom Line
Direct PLUS Loans can be a helpful way for parents or graduate students to finance higher education, but they’re not a one-size-fits-all solution. Be sure to consider your eligibility, interest rates, fees, and repayment options before taking on the debt.
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