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Direct PLUS Loan: Types, Eligibility, Repayment, and Forgiveness

Direct PLUS loan

Are you looking for a suitable loan program? If you are a graduate/professional student or a parent of an undergraduate student, you might qualify for PLUS loans. These loans cover the remaining educational costs that other financial assistance programs do not. The Direct PLUS loan program has two different types for students and parents. Although their application processes and interest rates are similar, there exist significant differences in repayment plans and eligibility requirements. 

This guide presents you both graduate and parent PLUS loans in detail.

What is a Direct PLUS Loan?

Federal Direct PLUS loan is a federal financial aid program for graduate/professional students and parents of dependent undergraduate students. Depending on the borrower, there exist two types of PLUS loans – graduate and parent PLUS loans. Their interest rates, application, and repayment conditions are similar. 

The main difference between these two programs is in the eligibility requirements. Besides, graduate PLUS loans are automatically deferred if the borrower is still in school. However, for parent PLUS loans, deferment should be required. 

In the following sections, we will explain the different types of Direct PLUS loans. 

Graduate PLUS Loan- Summarized

One of the Direct PLUS loan types is Graduate or Grad. PLUS loan. This funding type is available to graduate and professional students if they study in schools qualifying for Direct PLUS loans. The rate for this loan is currently 6.28%, but last year, this rate was only 5.30%. The current rate will be available for borrowers till July 2022. The new rate during next year can be lower or higher, which is hard to forecast. 

The eligibility conditions for this funding are slightly different from other Direct loans. Generally, the government does not require credit performance for student loans. However, when it comes to Direct PLUS loans, whether graduate or parent, a credit score is required. In other words, you need to have good credit performance as a graduate or professional student in a qualifying school. 

Now that you have some idea about the graduate PLUS loan, let’s check its eligibility, rates, application, and repayment in detail. 

Eligibility Conditions

As mentioned, only graduate or professional students can benefit from this Direct PLUS loan program. Therefore, if you are an undergraduate student, it is better to check Subsidized Direct loans. Besides, you should not have any adverse credit history. 

The general requirements for any federal student aid program are still applicable for graduate PLUS loans.

Credit Performance

If you decide to get a graduate PLUS loan, you will be subject to a credit check. Your credit history will be checked to detect any adverse event. For example, if you defaulted, bankrupt, faced wage garnishment, etc., you might not qualify for the new loan during the last five years.

In such cases, you still have an option. For instance, you can get help from an endorser or a co-signer. An endorser is a third party like a family member or friend who agrees to repay the debt if the borrower fails to do so. Besides, keep in mind that, in case you have an adverse credit history, you will be required to complete credit counseling on the FSA platform. 

Interest Rate

The interest rate for a Direct PLUS loan is the same regardless of whether you are a student or parent. If you get this PLUS loan funding, your interest rate will be 6.28%. The rate is fixed, which means during the repayment period, your interest rate will not change. 

However, the current rate is effective till July 2022. If you get this Direct PLUS loan after this period, your interest rate can be different. It can be lower or higher, which is hard to forecast. The rate depends on external factors like the 10-year Treasury notes auction. Hence, it is not easy to guess if the rate will increase or decrease. 

Besides the interest rate, the graduate PLUS loan program requires additional fees. This fee is paid once per loan disbursement. The rate of the fee depends on when you received the loan disbursement. For now, till October 2022, the loan fee is 4.228%. 

How Much Can You Borrow?

Direct PLUS loan

Direct PLUS loan program finances the part of educational costs not covered by other financial assistance programs. Hence, the limits of this funding also depend on these two factors: the cost of attendance and the financial assistance you get. The difference between these two elements is the amount you can borrow through graduate PLUS loans. 

Usually, the schools determine the cost of attendance. However, some schools only add tuition and fees as required costs. Meanwhile, others can include accommodation and boarding, transportation, school supplies, books, equipment, etc., in the educational expectations. 

Repayment

Repayment of graduate PLUS loans usually starts six months after graduation. Yet, if you do not graduate, the repayment starts six months after you leave or your education falls below half-time. While you study, you do not need to worry about repayment. 

However, keep in mind that interest will continue accruing. If you do not make any interest payments, they will be added to the original debt balance. This process is called capitalization. If your original debt balance increases, your monthly payments can also increase. Hence, we would advise you to make at least interest payments while you are still enrolled. 

Application

Before applying for a graduate PLUS loan, you need to complete the FAFSA form. FAFSA form is almost required for all types of federal financial aid programs. Next, you can request this Direct PLUS loan through an online application. 

However, you need to be careful. Some schools accept online applications. Others might have a different process. Hence, when you apply online and choose your school, you will find out what application process is required. You can also contact your school’s financial aid office to get more information or help in case of further steps.

Getting the Loan

Once you qualify for the loan, you will receive a Master Promissory Note. This document indicates the loan terms. It is advisable to read this document carefully as the rules are binding. 

Next, you need to finalize entrance counseling. You can ask your financial aid officer how to complete this program. 

In case of a successful application, the school gets all funding for all necessary fields, including tuition, boarding, etc. If there is any amount left, the borrower can receive the rest. You can cancel or return the amount if you do not need the loan fully or partially. 

Parent PLUS Loan

Direct PLUS loan

The Education Department distributes a Direct PLUS loan to parents through the parent PLUS loan program. As its name suggests, students cannot apply for this program. Only the biological or adoptive parents of students can qualify for the loan. Yet, the students should be dependent ones studying in undergraduate. 

Similar to a Graduate PLUS loan, the borrowers-parents- should have good credit performance without any adverse event. Besides, general requirements are still applicable. 

If a parent has an adverse credit history, he/she can still get the loan if an endorser is involved. An endorser is a family member or friend who guarantees repayment if the borrowers cannot meet the obligations. Keep in mind that the endorser cannot be the student. 

Rates

The interest rate for this federal Direct PLUS loan is the same as the graduate PLUS loan, fixed at 6.28%. As explained before, the rate changes every year, and it might decrease/increase next year after July. The rate is fixed, which means it does not change throughout the repayment period. 

Besides the interest rate, you will be required to pay additional loan fees. This fee is taken during each loan disbursement process. Till October 2022, the fee is fixed at 4.228%. 

Loan Limits

Again, similar to graduate PLUS loans, this program also finances the costs not covered by other financial assistance plans. So, you can get the amount equivalent to the difference between the cost of education and the total financial aid the student receives. The cost of education is determined by the school.

Application

Application is possible through online platforms. Yet, you need to check with your school how the application is made. Some schools might have specific rules. Once an application is made, you will be notified about the decision. If the application is successful, the borrower receives a Master Promissory Note which indicates loan terms. Next, the school applies the Direct PLUS Loan to educational costs. If any amount remains, the borrower can take it. Moreover, the school can give the money directly to the student with a parent’s authorization. 

If you decide that you do not need the whole or partial loan anymore, you can cancel the loan or refund the remaining amount. 

Repayment

Different from graduate PLUS loans, this Direct PLUS loan requires immediate repayment. Yet, the parent can request a loan deferment. As a result, the repayment will start only six months after the graduation, leave, or you enroll less than half-time. If the parent does not request a deferment, repayment starts.

During deferment, the interest payments will still accrue. These payments can be capitalized on the loan balance, which will increase the number of monthly loan payments during repayment. Hence, it is advisable to pay the interest rather than allow it to accumulate. 

Transfer of Obligations

Some parents wonder if they can transfer this Direct PLUS loan to the student. Unfortunately, it is not possible to transfer the debt to the dependent child. As a parent, you are responsible for parent PLUS loan repayment.

Repayment Plan

The federal government provides multiple repayment options for student loan borrowers. Hence, if you get a Direct PLUS loan, you can choose among different repayment plans. If you are not sure which plan to select, you can contact our debt specialists and get a free consultation.

Standard Repayment

This repayment option is available to both graduate and parent PLUS loans. The repayment can take ten years and 30 years in case of consolidated debt. As the repayment period is short, the monthly loan payments can be higher. If you have financial struggles, a Standard repayment plan might not be the best option. 

Graduated Repayment plan

This repayment plan is also available to all Direct PLUS loans. The repayment period is similar to the standard repayment option, but the monthly payment amounts will change. This plan requires lower monthly payments when you first get the loan. 

Then, however, after every two years, the amount is revised and increased. Hence, the Graduated repayment plan is the best option for new graduates. You start by paying less and then pay more when you have a better chance for a higher salary. 

Extended Repayment

All Direct PLUS loan borrowers can apply for Extended repayment plans. Unlike the programs mentioned above, this plan requires 25 years to pay off the debt. Besides, the plan can offer additional flexibility. For example, you can choose fixed or graduated repayments over the period. 

Income-driven Repayment Plans

If you have financial challenges, it is best to enroll in Income-driven repayment plans. There exist five different types of Income-driven repayment plans. You can review each and choose the most suitable one for your finances. 

As the name suggests, this plan is based on income (and family size). Hence, if you earn less, you will pay less. Borrowers can even get $0 payments in extreme cases. 

If you took a Direct PLUS loan as a student, you could apply for Revised PAYE, PAYE, Income-based, and Income-contingent repayment plans. Meanwhile, FFEL PLUS loan borrowers can enjoy the benefits of Income-sensitive repayment. Unfortunately, parents might not qualify for such repayment plans depending on the income level.

Let’s briefly check each repayment options’ interest rate and payback period. Yet, it is advisable to check our blogs or Student Aid website for more information.

Revised PAYE

First, the Revised PAYE program requires only 10 percent of your discretionary income. Discretionary income is what is left after deducting taxes and other necessary elements. It takes 25 years for graduate and professional students to pay off the debt.

PAYE

Again, graduate PLUS loan borrowers can apply for the PAYE program. This program also requires 10% of discretionary income, but the repayment covers 20 years.

Income-based 

Income-based repayment programs require 10% or 15% of discretionary income. The exact rate depends on when you first received your loan. Besides, depending on this factor, the repayment can take 20-25 years. 

Income-contingent Plan

This option is also available to graduate PLUS loans. The monthly rate is either 20% of discretionary income or a fixed rate required to pay off the debt in 12 years. Otherwise, the repayment takes 25 years.

The income-contingent repayment option is the only type of Income-driven plans that parents might qualify for. However, consolidation can be necessary.

Income-sensitive Plan

Though the name can confuse you, this plan does not cover Direct PLUS loans. Instead, only FFEL PLUS loans. The monthly payment rate depends on the income, but the payback period is only 15 years.

Forgiveness Programs for PLUS Loans

Direct PLUS loan

Keep in mind that if you enroll in Income-driven repayment options, you can get forgiveness. Forgiveness covers any remaining amount once you complete the repayment period. Hence, it usually takes 20-25 years to receive student loan forgiveness through Income-driven repayment plans.

Public Service Loan Forgiveness

Another program that can help you get rid of a Direct PLUS loan is Public Service Loan Forgiveness. This forgiveness option helps borrowers working in the public sector. They should make 120 payments before getting their remaining debt canceled. Luckily, there exists no limitation for forgiveness. Therefore, borrowers can eliminate any amount of debt after 120 payments. 

Each payment should be made on time, in full amount, and through Income-driven repayment plans. Throughout the repayment period, debtors should continue working for qualifying employers. 

Borrowers’ Defense to Repayment

Borrowers’ Defense to Repayment is also a great opportunity if you have Direct loans. The program benefits students who the school misled. For example, if your school lied about job replacement rates or education quality, you can eliminate debt obligations fully or partially. The main condition is proving that you would not incur debt if your school did not misguide you. 

Final Words

Although Direct PLUS loans are available to many borrowers, they are not always the best options. For example, compared to Subsidized or Unsubsidized Direct Loans, the interest rate of a PLUS loan can be higher. Besides, a credit check is necessary for this kind of funding option. Therefore, we would advise you to consider other federal funding programs before applying for PLUS loans. Yet, if you have already taken the PLUS loan, you can find forgiveness and effective repayment plans to get rid of debt obligations.