Otherwise, there is no requirement that a PLUS loan borrower have good credit, such as a high credit score, minimum income threshold or low debt-to-income ratio.
The credit criteria for a PLUS loan are backward-looking, considering whether the borrower has had financial difficulty in the past. The PLUS loan does not consider the borrower’s future ability to repay the debt.
To be eligible to borrow through the Federal Parent PLUS Loan program, a parent must be a biological or adoptive parent of the undergraduate student, or married to the student’s parents. Thus, stepparents are eligible to borrow Federal Parent PLUS loans only while they are married to the student’s biological or adoptive parent. If the stepparent’s spouse dies, or the stepparent gets divorced, the stepparent is no longer eligible for the Federal Parent PLUS loan.
The student and parent must also satisfy other general eligibility requirements for federal student aid, including citizenship status, student enrollment in an eligible degree or certificate program, and neither student nor parent in default on a federal student loan or grant overpayment.
How to Apply for Federal PLUS Loans
To obtain a Federal PLUS Loan, talk to the college’s financial aid office. The Federal PLUS Loan is disbursed through the college financial aid office, so they administer the application process and determine the maximum amount you can borrow. They will ask you to complete a PLUS loan application at the Studentaid.gov web site.
PLUS Loan borrowers will also have to sign a Master Promissory Note (MPN) at Studentaid.gov to obtain a Federal PLUS Loan. The Master Promissory Note is good for a continuous period of enrollment at a specific college for a period of up to 10 years.
Disbursement of Federal PLUS Loans
The funds from a Federal PLUS Loan are sent from the federal government directly to the college. The college financial aid office then applies the loan funds to tuition and fees, plus room and board if the student is living in college housing.
Any remaining credit balance is normally “refunded” to the student or parent within 14 days. (Parents can authorize the college to refund any leftover Federal Parent PLUS loan proceeds to the student.) The 30-day delay for first-time, first-year borrowers does not apply to Federal Parent PLUS Loans. Federal PLUS loans will generally be disbursed in two installments.
Repayment of Federal PLUS Loans
Repayment of Federal PLUS Loans begins within 60 days of full disbursement. However, parents may choose to delay the start of repayment until the end of the six-month grace period after the student graduates or drops below half-time enrollment. Repayment can also be deferred while the parent borrower of a Federal Parent PLUS Loan is enrolled at least half-time in college. Interest will accrue and will be added to the loan balance if it isn’t paid as it accrues.
Parent borrowers of Federal PLUS loans are not directly eligible for an income-driven repayment plan. However, if the loans entered repayment on or after July 1, 2006 and are included in a Federal Direct Consolidation Loan, the consolidation loan is eligible for income-contingent repayment (ICR). This may also make the Federal PLUS loan eligible for public service loan forgiveness. Otherwise, Federal Parent PLUS loans are eligible for standard 10-year repayment, extended repayment and graduated repayment.
Note that Congress may close this ICR loophole for the Parent PLUS loans in the future.
Federal Grad PLUS loans are eligible for all the repayment plans, including all the income-driven repayment plans.
Borrowers who sign up for auto-debit, where the monthly loan payments are automatically transferred from the borrower’s bank account to the lender, may receive a 0.25% interest rate reduction as an incentive.
Federal PLUS loans are eligible for discharge upon the death or total and permanent disability of the borrower. In addition, Federal Parent PLUS loans may be discharged upon the death (but not disability) of the student on whose behalf the loan was borrowed. Death and disability discharges of federal and private student loans are tax-free since January 1, 2018.
Federal PLUS loans are also eligible for other loan cancellation provisions, such as the closed school discharge, identity theft discharge, bankruptcy discharge, unpaid refund discharge and false certificate discharge. They may be eligible for loan forgiveness, such as public service loan forgiveness, which requires working in a specific occupation for a specified period of time while repaying the loans.
Alternatives to the Federal PLUS Loan
If the student has exhausted eligibility for the Federal Stafford Loan, the alternatives to the Federal PLUS Loan include private student loans and private parent loans. Generally, private loans require a creditworthy cosigner, which is usually the parent.