Federal Direct PLUS Loan (Parent Loan for Undergraduate Students)
The Federal Direct PLUS Loan allows parents with acceptable credit histories to borrow for the educational costs of each dependent son or daughter enrolled in at least six credits at a post-secondary institution. The parent borrowing PLUS Loan funds assumes the educational loan debt for the dependent student.
An eligible parent borrower must:
- Be the natural or adoptive parent, or legal guardian of the dependent student,
- Be a U.S. citizen or eligible non-citizen (eligible non-citizens must supply documentation of their immigration status),
- Be borrowing on behalf of a dependent student who meets all of the requirements for the Federal Direct Loan Program (for this reason, Minnesota State Mankato requires a FAFSA to be on file prior to processing a Direct PLUS Loan),
- Have a credit worthy history as determined by your lender, and
- Not be in default or owe a refund on any Title IV Federal Student Aid.
There are no annual or aggregate limits on Federal Direct PLUS loans; however a parent may not borrow more than the cost of attendance determined by the school, less any other financial aid received during the loan period. For example, if the academic year cost of attendance is $20,000 that is the maximum amount of financial assistance the dependent student may receive from all sources including the Federal Direct PLUS Loan; therefore if the student is receiving $4,000 from other aid programs, the parent is limited to borrowing $16,000 from the Federal Direct PLUS Loan program.
This is a loan fee deducted proportionately from each loan disbursement. This means the money disbursed will be less than the amount actually borrowed. The borrower is responsible repaying the entire amount borrowed and not just the amount disbursed.
A 4.228% origination fee applies to Federal Direct Loans first disbursed on or after October 1, 2020.
Fall 2022 – Summer 2023
As of 7/1/2022, interest rate for the 2022-2023 school year is 7.54% for Federal Direct Parent PLUS Loans.
Fall 2023 – Summer 2024
As of 7/1/2023, interest rate for the 2023-2024 school year is 8.05% for Federal Direct Parent PLUS Loans.
Interest begins accruing on loan amounts when they are disbursed and are the responsibility of the borrower, not the US Department of Education. Interest accrued during periods of deferment can either be paid periodically or can continue to accrue and be capitalized, which means the amount is added to the loan principal at the time of repayment.
Paying Back Your Loan
The parent borrower is responsible for paying all Federal Direct PLUS Loans in full, plus interest. A repayment schedule is sent to the parent borrower upon final disbursement of the loan. Generally, the maximum repayment period is 10 years and repaying the loan as quickly as possible lowers the cost of interest.
Interest and principal payments may be made before repayment is required, and parent borrowers are especially encouraged to pay the interest charged on Federal Direct PLUS Loans while the dependent student is in school if possible. This will keep future monthly payments lower because the interest that accrues will be combined with the loan principal to determine interest calculations throughout the repayment period. There is no penalty for repaying Federal Direct PLUS Loans before they are due.
The Federal Direct PLUS Loan Program contains a variety of provisions designed for flexible repayment including deferments and forbearances, which may enable the borrower to temporarily suspend or reduce payments.
A deferment is a period of time during which repayment requirements are temporarily suspended. Deferments are granted for specific time periods and only for conditions set forth under federal law. The parent borrower may choose the deferment option on the loan application or may contact the Department of Education loan servicer to request a deferment.
If a borrower is not eligible for a deferment and has difficulty making the scheduled payments, contact the Department of Education loan servicer to discuss the possibility of a forbearance to reduce or suspend regular payment or to lengthen the repayment period. The loan servicer is eager to work with borrowers when they believe the borrower has a commitment to repay the loan. Forbearance is available if the borrower’s eligibility for deferment is exhausted, or if the borrower is involved in certain bankruptcy proceedings or is applying for a total and permanent disability cancellation. Interest continues to accrue the during periods of forbearance. Payment of interest can be made during the forbearance or it can be capitalized and added to the loan. If the interest is capitalized, the monthly payment amount may increase after the forbearance period has ended.
The borrower should contact the Department of Education loan servicer to report changes in name, address, and/or telephone number or if financial hardship prevents the ability to make scheduled loan payments.
Failure to repay a Federal Direct PLUS Loan, known as defaulting, has serious consequences. All national credit bureaus are notified of loans in default and borrowers of federal educational loans in default are subject to collections procedures by external collection agencies, wage garnishment, and seizure of federal income tax refunds.