Federal Direct PLUS Loans: What Borrowers Need To Know

Federal Direct PLUS Loans are a type of student loan from the government, and they're available to graduate students and parents of dependent undergraduates. In the 2023-24 academic year, federal PLUS loans accounted for 26% of all educational loans, according to the College Board. However, these loans are different from most federal student aid in important ways.

This type of debt comes with higher origination fees and interest rates than other Direct Loans, and those with adverse credit can't qualify without meeting certain requirements. But PLUS loans do offer federal student loan borrower benefits.

Before applying for them, learn the details to understand if Direct PLUS Loans are right for you.

What are federal Direct PLUS Loans?

The Department of Education offers federal Direct PLUS Loans. There are two categories of these Loans:

• Parent PLUS loans: Parent PLUS loans are available to biological, adoptive, and sometimes stepparents of dependent undergraduate students attending a qualifying academic program at least half-time.
• Graduate PLUS loans: Grad PLUS loans are available to graduate or professional students who are enrolled at least half-time in an eligible program leading to a professional or graduate degree or certificate.

Both grad and parent PLUS loans allow you to borrow up to the school-certified cost of attendance, minus other forms of financial aid you receive.

Who is eligible for Direct PLUS Loans?

Graduate or professional students and parents of dependent undergrads may qualify for Direct PLUS Loans if they submit the Free Application for Federal Student Aid (FAFSA), as well as a Direct PLUS Loan application. You or your child must attend a qualifying program at least half-time. Borrowers also must meet general eligibility requirements for federal student aid, including U.S. citizenship status or being an eligible noncitizen.

One key factor that makes PLUS loans different from other federal loans is that credit score matters. “Federal loans usually do not require a credit check or cosigner,” explains Hillary Saylor Schulze, director of student financial services counseling at Alvernia University. “However, the federal PLUS loan option does require a credit check.”

Borrowers who are found to have “adverse credit,” as defined by the Department of Education, can't qualify for PLUS loans without meeting extra requirements. Adverse credit means a credit report that shows:

• Delinquent accounts with a total combined balance exceeding $2,085 that are 90 or more days late, or that have been put into collections or charged off in the 2 years before the credit report
• A default determination, repossession, foreclosure, wage garnishment, or tax lien in the 5 years before the date of the credit report
• Write-offs of federal student debt in the past 5 years

Borrowers with adverse credit

If you apply for a Direct PLUS Loan and you have adverse credit, you still have the ability to borrow if you can do one of two things:

• Find a qualified endorser without adverse credit: An endorser is just like a cosigner and is legally liable for the debt if you fail to make payments.
• Document extenuating circumstances: The Department of Education must be satisfied that there were unusual circumstances resulting in your adverse credit.

If you pursue either option to borrow with adverse credit, you're also obligated to complete PLUS credit counseling in order to get a loan.

How to apply for a federal Direct PLUS Loan

You'll need to take out a student loan from the Department of Education if you want to use Direct PLUS Loans to help pay for your degree.

“Federal student loans are part of the FAFSA financial aid process,” says Schulze. This means you must start by completing the Free Application for Federal Student Aid. You can complete the FAFSA in about an hour online and must provide basic details, including income and asset information, although you can consent to have financial details imported from the IRS.

After completing the FAFSA, you'll also need to submit a separate Direct PLUS Loan Application. Most schools allow you to apply online using one of these forms:

• Direct PLUS Loan Application for Graduate/Professional Students
• Direct PLUS Loan Application for Parents

It takes about 20 minutes to complete the application, and you will need to provide a verified Federal Student Aid (FSA) ID, your requested loan amount, school name, personal information, and employment details if applicable.

You should be aware there are no FAFSA income limits, and anyone can apply for PLUS loans. Some schools have different processes to follow, though, so be sure to check with the financial aid office at the school you or your child will be attending.

Interest rates and loan terms for PLUS loans

Federal student loans typically have favorable terms.

“Federal student loans have fixed interest rates, which means their rates don't change throughout the life of the loan,” says Amanda Elliott, associate director of financial aid and student finance advising at Colorado State University Global.

Depending on your income, student loan interest is tax deductible up to certain limits, as well.

However, PLUS loans have higher costs and less favorable terms than Direct Subsidized and Direct Unsubsidized Loans, as the origination fees and interest rates are higher for PLUS loans.

For both parent PLUS loans and grad PLUS loans, the interest rate for loans disbursed on or after July 1, 2024, and before July 1, 2025, is 9.08%. There is also a 4.228% origination fee for Direct PLUS Loans disbursed on or after Oct. 1, 2020.

By contrast, Direct Subsidized and Unsubsidized Loans have fixed rates of either 6.53% or 8.08%, depending on your academic level, and origination fees of 1.057%. Some private student loans may offer lower rates than Direct PLUS Loans, and private lenders don't charge origination fees in most circumstances. Still, private loans don't come with the advantages that federal loans offer.

Current private student loan rates

Repayment options for PLUS loans

One of the biggest benefits of PLUS loans is the flexible repayment choices available. “Federal loans make payback less daunting,” says Eric Steffy, founder of Federal Support Solutions. “I'm a big proponent of federal loans because they offer a variety of ways to handle repayment.”

Parent PLUS loans

For parent PLUS loans, repayment options include:

• Standard Repayment Plan: Loans are repaid over 10 years, with fixed monthly payments for the life of the loan.
• Graduated Repayment Plan: Loans are also repaid over a decade but with payments that start lower and increase every 2 years.
• Extended Repayment Plan: Payments can be made for up to 25 years and are either fixed or graduated, but you must have more than $30,000 in outstanding Direct Loans.

Income-Contingent Repayment sets payments at the lesser of 20% of your discretionary income and the amount you'd pay under a plan with a 12-year term and fixed monthly payments, adjusted based on income. After 25 years of on-time payments, the remaining debt is forgiven.

Grad PLUS loans

Students with grad PLUS loans have access to all these payment choices, as well as other income-driven plans, even without consolidation. Income-driven plans available to grad PLUS borrowers can result in forgiveness after 10 to 25 years of qualifying payments, which are set at 5% to 20% of discretionary income, depending on the plan.

Both types of PLUS loan borrowers also have generous options for deferment and forbearance in qualifying circumstances, such as during periods of unemployment, economic hardship, or military service.

Pros and cons of Direct PLUS Loans

There are both advantages and disadvantages to Direct PLUS Loans. Here are some of the biggest benefits:

• Fixed interest rates: Your rate will not change over the life of the loan.
• Higher borrowing limits: You can borrow up to the school-certified cost of attendance, minus other aid you receive. You aren't subject to annual and lifetime caps applicable to Direct Subsidized and Unsubsidized Loans.
• Access to federal borrower benefits: PLUS loans offer income-driven options, loan forgiveness, and generous deferment and forbearance options.

Here are some of the biggest downsides:

• Higher origination fees: The costs are typically higher for PLUS loans than other Direct Loans and even many private loans.
• Higher interest rates: Interest rates are higher for PLUS loans than other Direct Loans, and some well-qualified borrowers may even be able to get better interest rates with private lenders.
• Credit check required: Qualifying for PLUS loans is more difficult because it requires a credit check, and loans aren't available to those with adverse credit (unless you meet specific requirements).