If you’re thinking about grad school or are a parent hoping to help your undergraduate child, a federal Direct PLUS Loan is designed to help. Depending on your credit situation and other options, however, you may be able to save money elsewhere.
As you consider how to finance your or your child’s college education, here’s what a federal PLUS Loan can do for you and how to tell whether it’s a good fit.
Federal PLUS Loans are broken down into two different groups: Grad PLUS Loans and Parent PLUS Loans. The former option is designed for college students pursuing a graduate or professional degree or certificate, while the latter is for parents looking to help an undergraduate student pay for school.
While the program is the same, some of the eligibility requirements are a little different for each loan type. For all PLUS Loans, you cannot have an adverse credit history, including no recent bankruptcies or foreclosures, unpaid collection accounts and 90-day delinquent accounts, among other things.
If you’re getting a Grad PLUS Loan, you’ll also need to be a graduate or professional student enrolled at least half-time in a program leading to a degree or certificate at an eligible school, and you need to meet all general eligibility requirements for federal financial aid.
With Parent PLUS Loans, on the other hand, you must be the biological or adoptive parent of a dependent undergraduate student who’s enrolled at least half-time at an eligible school. Additionally, both you and your child must meet the general requirements for federal financial aid eligibility. Grandparents and legal guardians are not eligible for Parent PLUS Loans unless they’ve legally adopted the student.
If you don’t meet the Department of Education’s credit requirements, you may be able to apply with a co-signer.
Before you can apply for a federal PLUS Loan, you’ll need to fill out the Free Application for Federal Student Aid (FAFSA) form. Once you’ve completed and submitted that, you can submit a loan application at StudentLoans.gov.
If your application is approved, you can borrow up to the cost of attendance determined by your or your child’s school, minus any other financial aid you or the student receives.
All federal Direct PLUS Loans charge interest and loan fees, which can change each school year. For loans disbursed on or after July 1, 2019, and before July 1, 2020, the interest rate is fixed at 7.08%.
As for loan fees, which are deducted from each disbursement, you’ll pay 4.248% of each loan amount if your first loan is disbursed on or after October 1, 2018, and before October 1, 2019. If your first disbursement comes during the following year, the loan fee is 4.236%.
Federal Direct PLUS Loans aren’t always the best option. But one reason to consider them is the benefits the U.S. Department of Education provides for its borrowers. These include:
Depending on your situation and repayment plans, having these perks can be worth it, even if you’re paying more in interest and fees.
Before you apply for any type of student loan, it’s important to know what else is out there and how it compares. Whether you’re paying for your own education or for your child, here are some alternatives to consider.
The Direct Unsubsidized Loan program is available to graduate and professional students but not to parents. Federal Direct Unsubsidized Loans are also provided by the Department of Education, but with some key differences. For example, instead of allowing you to borrow up to the cost of attendance for your school, the maximum you can borrow is $20,500 per year and $138,500 in total.
If that’s all you need, though, you’ll benefit from a slightly lower interest rate of 6.08% through June 30, 2020. Also, the loan fee is much lower at 1.062% through September 30, 2019, and 1.059% through the following year.
Finally, Direct Unsubsidized Loans don’t require a credit check of any kind, so you can qualify even if you have some major negative items on your credit report.
If you’re a parent, you may benefit from having your undergraduate child apply for federal Direct Loans. Depending on their financial need, they may qualify for subsidized or unsubsidized loans. With subsidized loans, the Department of Education covers the cost of interest until your child starts making payments after they’re out of school, potentially saving them a lot of money.
Even if they don’t qualify for subsidized loans, the cost of an undergraduate Direct Loan is much lower than a Parent PLUS Loan. The interest rate is just 4.53% through June 30, 2020, and the loan fees are the same as for graduate unsubsidized loans.
While your student will need to apply for these without you, it’s possible to set up an arrangement where you make payments on their behalf, allowing you to still help them out.
If you have an established credit history, you may be able to save money by working with a private lender instead of with the federal government. Some private student lenders offer rates starting much lower than what you’ll pay on a federal Direct PLUS Loan.
Also, most private lenders don’t charge origination fees, providing you with instant savings. While you’ll typically need strong credit and financial profiles to score the lowest rates, you can also get a co-signer to help you.
That said, private student lenders don’t provide borrowers with the same benefits as the federal government. While you may get access to deferment and forbearance, you won’t find a lender that offers an income-driven repayment plan or loan forgiveness programs.
Finally, you may be limited in how much you can borrow each year and in total. Make sure to check the fine print to see if you can get enough.
If you’re looking to finance your own graduate education or your child’s undergraduate schooling, take some time to compare the different options available before you apply. Here’s a quick summary of the benefits and drawbacks of each of the loans we’ve explored.
If your credit is less than perfect, but you don’t have any major negative items on your credit report, and you don’t want to be limited in how much you can borrow, Grad PLUS and Parent PLUS Loans can be appealing.
If you have an adverse credit history and either can’t get a co-signer or don’t want to involve someone else in paying for your education, Direct Unsubsidized Loans may be worth considering.
If you’re trying to help your undergraduate child, having them apply for a loan may end up saving you more money upfront and in the long run.
If your credit history is strong or you have a creditworthy co-signer, private loans can potentially save you money. They may not be worth it, however, if gaining access to federal loan benefits is a priority.
If you’re looking at Federal Direct PLUS Loans, chances are that they’re not your only option. As you consider federal PLUS Loans and their alternatives, it’s important to consider what’s most important to you and which loan would be the best fit.
And if you’re leaning toward private student loans, you can easily compare interest rates and find the best a lender with Purefy’s rate comparison tool. As you thoroughly compare each option, it’ll be easier to determine which one is the right one for you.