Direct PLUS Loan

Direct PLUS Loan
Name	Direct PLUS Loan
Type	Federal student loan
Issuer	United States Department of Education
Purpose	Higher education costs
Eligibility	Parents of dependent students, graduate/professional students
Interest type	Fixed
Repayment	Standard, graduated, extended, income-contingent (for consolidation)

Direct PLUS Loan. It is a type of federal student loan available to parents of dependent undergraduate students and to graduate or professional students, issued directly by the United States Department of Education under the William D. Ford Federal Direct Loan Program. These loans help cover education expenses not met by other financial aid, such as Federal Pell Grant awards or Direct Subsidized Loan funds, and are not based on demonstrated financial need. Borrowers must generally pass a basic credit check administered by the department, and the maximum loan amount is determined by the student's cost of attendance minus any other aid received.

Overview

The program was established under the Higher Education Act of 1965 and later incorporated into the Direct Loan program through the Student Loan Reform Act of 1993. Unlike loans from the Federal Family Education Loan Program, these are federal direct loans where the United States Department of Education is the sole lender. They are designed to provide additional funding beyond the annual and aggregate limits of Direct Subsidized Loan and Direct Unsubsidized Loan programs. The funds are typically disbursed through the financial aid office at the borrower's school, which may be a university, college, or career school eligible for Title IV funding. Repayment obligations fall directly on the borrower who signs the Master Promissory Note, not the student.

Eligibility and requirements

Eligible borrowers include biological or adoptive parents, and sometimes stepparents, of dependent undergraduate students enrolled at least half-time at an eligible institution, as well as graduate or professional students themselves. The student must be a U.S. citizen, eligible noncitizen, or meet other status requirements like those for Deferred Action for Childhood Arrivals. The borrower must not have an adverse credit history as defined by the United States Department of Education, though certain extenuating circumstances documented to the satisfaction of the Federal Student Aid office may allow for approval with an endorser. All borrowers must meet general federal student aid requirements, and the school must certify the loan amount based on the student's cost of attendance.

Application process

The process begins by completing the Free Application for Federal Student Aid, after which the student's school provides a financial aid award letter. The prospective borrower then submits a separate application for this loan through the Federal Student Aid website. This triggers the required credit check by the United States Department of Education. If denied, options include obtaining an endorser—similar to a cosigner—or appealing the decision by documenting extenuating circumstances to the satisfaction of the Federal Student Aid office. Upon approval, the borrower must complete loan counseling and sign a Master Promissory Note agreeing to the terms. Final certification and disbursement are handled by the school's financial aid office.

Interest rates and fees

The interest rate is fixed for the life of the loan and is set annually by Congress based on the high-yield 10-year Treasury note auction, plus a statutory add-on. Rates for new loans are published each July by the United States Department of Education. In addition to interest, a loan origination fee is deducted from each disbursement; this fee is also set annually by Congress and is a percentage of the total loan amount. These costs are typically higher than those for Direct Subsidized Loan and Direct Unsubsidized Loan programs. Interest begins to accrue immediately upon disbursement and capitalizes if not paid during deferment or forbearance periods.

Repayment and forgiveness

Repayment typically begins once the loan is fully disbursed, but borrowers may request a deferment while the student is enrolled at least half-time and for an additional six months after the student graduates or drops below half-time enrollment. Standard repayment plans include the 10-year Standard Repayment Plan, though borrowers may qualify for Graduated Repayment Plan, Extended Repayment Plan, or, if consolidated with other federal loans, an Income-Contingent Repayment Plan. Loan forgiveness is limited but may be available through the Public Service Loan Forgiveness program for borrowers working full-time for qualifying employers like the U.S. federal government or a 501(c)(3) organization. Discharge may also occur due to the death of the borrower or student, or in cases of total and permanent disability.

Comparison with other federal loans

Unlike Direct Subsidized Loan funds, for which the United States Department of Education pays interest during certain periods, interest accrual is never subsidized. Borrowing limits are also distinct; while Direct Unsubsidized Loan and Direct Subsidized Loan programs have annual and aggregate caps, these loans can cover up to the full cost of attendance minus other aid. The credit requirement is a key differentiator, as most other federal student loans do not require a credit check. Furthermore, these loans generally carry higher interest rates and fees than Direct Subsidized Loan or Direct Unsubsidized Loan options, and parent borrowers cannot transfer the debt to the student, unlike some private loans from institutions like Sallie Mae or Discover Bank.

Category:Student financial aid in the United States Category:United States Department of Education