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You should always use federal student loans to pay for school first because they usually have lower interest rates than other types of loans — and that’s usually good advice. But with federal Direct PLUS student loans, that’s not always the case.
Here’s everything you need to know about PLUS Loans and why you might want to explore alternatives:
- Federal Direct Plus Loans: Who are they for?
- How are Direct PLUS Loans different from other federal loans?
- Applying for a federal Direct Plus Loan
- What to keep in mind before accepting a Federal Direct Plus Loan
Federal Direct Plus Loans: Who are they for?
Federal Direct PLUS Loans consist of two different types of loans:
- Grad PLUS Loans are for → Graduate and professional degree students
- Parent PLUS Loans are for → Parents of undergraduate students who can take out Parent PLUS Loans to pay for their child’s education
How are Direct PLUS Loans different from other federal loans?
Direct PLUS Loans differ from other types of federal student loans in three keys ways:
- Credit check required: With most forms of federal student loans, a credit check isn’t required. But with Direct PLUS Loans, the government will conduct a credit check. If you have an adverse credit history — such as having a bankruptcy, foreclosure, or tax lien on your credit report — you might need to add a cosigner to your application to qualify. If you have less-than-stellar credit, you’ll likely want to start with Direct Subsidized or Unsubsidized Loans before trying to take out PLUS Loans.
- Limited availability: Direct PLUS Loans aren’t for everyone. Grad PLUS Loans are only for graduate and professional degree students, while Parent PLUS Loans can only be taken out by parents of undergraduate students.
- No loan maximum: Unlike Direct Subsidized and Unsubsidized Loans, which have annual limits on how much you can borrow, PLUS Loans don’t have a set loan maximum. Instead, you can borrow up to the total cost of attendance minus any other financial aid you received. If you’ve hit the limit on the other types of loans, PLUS Loans can help fill the gap.
Applying for a federal Direct Plus Loan
To apply for a federal Direct PLUS Loan, follow these steps:
- Submit the FAFSA: The student planning on going to college has to complete and submit the Free Application for Federal Student Aid (FAFSA) before applying for federal Direct PLUS Loans.
- Apply for PLUS Loans online: Visit StudentLoans.gov and log in using your FSA ID to complete the PLUS Loan application online. You’ll be asked to enter your name, Social Security number, intended school, and requested loan amount.
- Sign a Master Promissory Note: Next you’ll have to sign the Master Promissory Note that outlines the terms of the loan.
- Check with your school: Your school will review your application and let you know how much you can borrow and what you need to do to accept the loan.
- Receive the leftover funds: Your college will apply the money to your account to cover tuition, fees, and room and board. If there’s any money left over, it will be distributed to the student to cover other expenses, such as textbooks.
What to keep in mind before accepting a Federal Direct Plus Loan
Before taking out a PLUS loan, there are a few things you should keep in mind:
1. Interest rates
Federal student loans tend to have lower interest rates than private student loans, but PLUS loans might be the exception. The interest rate on PLUS Loans is the highest of all federal student loans. Also, keep in mind that there’s a 4.236% upfront fee on PLUS loans that can raise the APR by a full percentage point.
(Loans disbursed July 1, 2019 - June 30, 2020)
(Loans disbursed July 1, 2018 - June 30, 2019)
|Direct PLUS Loans||7.08%||7.60%|
|Direct Unsubsidized Loans |
|Direct Unsubsidized Loans |
|Direct Subsidized Loans |
Depending on your credit, income, and borrowing needs, you might be able to get a lower interest rate from a private lender. Some lenders offer fixed interest rates as low as 3.82%+.
Learn More: Parent PLUS Loans vs. Private Student Loans
2. PLUS loans might not be eligible for certain repayment plans or loan forgiveness
When it comes to understanding your repayment options, PLUS Loans do have some nuances you should be aware of:
- Grace periods: With Grad PLUS Loans, you don’t need to start making payments until six months after you graduate, leave school, or drop below half-time status. If you have Parent PLUS Loans, you have to start making payments on your loans right away unless you opt for deferred payments. If you defer payments, interest accrues on the loan, but you can wait until six months after your child’s graduation date to start making payments.
- Repayment Plans: If you can’t afford your payments under a 10-year repayment plan, you can sign up for an alternative repayment plan. But your options are dependent on what type of PLUS Loan you have.
- Grad PLUS Loans: Grad PLUS Loans are eligible for Graduated Repayment, Extended Repayment, Revised Pay As You Earn, Pay As You Earn, Income-Based Repayment, and Income-Contingent Repayment plans.
- Parent PLUS Loans: Parent PLUS Loans are only eligible for Graduated Repayment and Extended Repayment. However, if you consolidate your debt with a Direct Consolidation Loan, you can become eligible for an Income-Contingent Repayment plan.
- Loan forgiveness: If you intend to pursue loan forgiveness through Public Service Loan Forgiveness (PSLF), you need to make payments under an income-driven repayment plan (IDR). Grad PLUS Loans are eligible for any of the four IDR plans. Parent PLUS Loans are not. However, you can qualify for Income-Contingent Repayment by first consolidating your debt with a Direct Consolidation Loan. When you do so, your payments will then count toward PSLF.
Find Out: How to Consolidate Your Student Loans
3. A private student loan with a cosigner might be better
If you’ve exhausted all other options like scholarships, grants, and other federal student loans, and still need money for school, it might make sense to explore private student loans before taking out federal Direct PLUS student loans.
As a student, you might not be able to qualify for a loan on your own. But with a creditworthy cosigner, you can often get a private student loan with a low interest rate that can cover the rest of your education costs.
With Credible, you can get personalized loan offers from multiple lenders at once, helping you quickly find the best rates and terms for your needs. You can even add different cosigners to find the one that will get you the lowest rate.
|Lender||Fixed rates from (APR)||Variable rates from (APR)|
|5.09% - 12.49%6||2.15% - 10.37%6|
|4.74% - 11.85%9||2.00% - 10.01%9|
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Lowest APRs reflect autopay, loyalty, and interest-only repayment discounts where available | 1Citizens Bank Disclosures | 2,3College Ave Disclosures | 6Discover Disclosures | 7SunTrust Bank Disclosures | 8EDvestinU Disclosures | 9Sallie Mae Disclosures
Citizens Bank Student Loan Rate Disclosure Variable rate, based on the one-month London Interbank Offered Rate ("LIBOR") published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 1, 2020, the one-month LIBOR rate is 0.92%. Variable interest rates range from 1.95%-10.28% (1.95%-10.13% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.40%-12.19% (4.40% - 12.04% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown requires application with a co- signer, are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan.