Parents in need of financial assistance for their child’s college education may want to consider taking out a federal direct plus loan. These loans provide access to tuition costs that private loans do not cover.
However, they offer higher interest rates than other federal student loans. It’s wise to explore other options before considering a federal direct plus loan.
A direct plus loan is a valuable resource for students and their parents in covering educational costs not covered by other forms of aid. These can include tuition fees, room and board costs, books, supplies, transportation fees as well as loan fees.
The loan is a federal program available to graduate or professional students as well as parents of dependent undergraduate students to help cover education-related costs. It acts as an intermediary between what students can afford with other forms of aid and what remains after taking into account grants, work-study opportunities or federal loans.
A direct plus loan offers some unique advantages not available with other federal loans, such as a fixed interest rate and no borrowing limits for parent borrowers. Furthermore, parents can consolidate their loan after graduation to simplify repayment. In certain circumstances, the federal government even forgives both grad PLUS and parent PLUS loans.
Loan fees are a percentage of the total amount borrowed, deducted from your federal loan before it’s disbursed to you.
Direct PLUS loans are federal student loans designed to aid graduate and professional students, as well as parents who are supporting their dependent undergraduate children’s educational pursuits. Since these loans are credit-qualified, lenders take into account your credit history when you apply.
These loans are unsubsidized, meaning interest accrues while you’re in school. Furthermore, they come with higher interest rates than other federal loans.
If your education expenses are not covered by federal aid, private student loans may be necessary to cover any remaining costs. They typically offer better terms than federal loans, but it’s important to assess your creditworthiness before making a final decision.
For the 2022-23 school year, parents or graduate student Direct PLUS Loans carry an interest rate of 7.54% which includes a 4.228% origination fee (for loans disbursed on or after October 1, 2020 but before October 1, 2022). There are no prepayment penalties with these loans so you have no reason to fear if you decide to pay it off early.
Direct plus loans have some of the highest interest rates among all federal student loan products. They are fixed for life and set annually by Congress.
Graduate and professional students can use Direct Plus Loans to cover educational expenses while enrolled in a graduate or professional program. They may also use these loans for other costs associated with their education.
Parents of dependent undergraduate students can utilize Direct PLUS Loans to cover their student’s education expenses. To be eligible for these loans, parent borrowers must meet federal financial aid eligibility criteria.
The maximum amount of a Direct PLUS loan is determined by the total cost of attendance less any other financial aid received by the student. There is no cap on how many Direct PLUS loans parents may borrow at once.
When you take out a direct plus loan to finance your education, you are legally liable for paying it back. This means you cannot transfer it onto your student and the balance remains outstanding even after graduation or dropping below half-time enrollment status.
Furthermore, the interest on a direct plus loan isn’t subsidized while you’re in school like that of subsidized Stafford or Perkins loans; rather, it accrues interest during any periods that you fail to make payments.
That means if you take out a $25,000 loan, the interest on it would amount to $42,692 by the time you pay off the debt – almost half of your original loan amount!
One major disadvantage of a direct plus loan is that you will be charged an origination fee of 4.228%, which is four times as much as Federal Stafford loans. This fee will be deducted proportionally from each disbursement.