Federal Direct PLUS Loan for Parents
Parents of dependent students have the option of taking out a Federal Direct PLUS Loan to assist with paying for their child's education.
After a student submits the FAFSA a Federal Direct PLUS Loan will appear on their award as an option if they meet initial eligibility requirements. The student then indicates their parent's intent regarding the loan by accepting or declining it in CyberBear.
If the Federal Direct PLUS Loan is accepted the parent borrower must submit a Federal Direct PLUS Loan Request through StudentAid.gov, and first time borrowers must also complete a Master Promissory Note (MPN). The Federal Direct PLUS Loan Request authorizes the credit check that is required annually to determine eligibility for the loan.
Parents completing the PLUS MPN or PLUS Loan request use their own FSA ID, not their child's FSA ID.
Federal Direct PLUS Loan for Parents Details
Only the parents of dependent students are eligible to take out the Federal Direct PLUS Loan and only if the student is enrolled at least half-time (6 credits) and is otherwise eligible to receive federal aid.
The parent borrower must be a citizen or eligible non-citizen and not have an adverse credit history. The Federal Direct PLUS Loan is not a need-based loan.
The following individuals are eligible to take out a Federal Direct PLUS loan on a student's behalf:
- legal parent, whether biological or adoptive
- step-parent whose information is supplied on the FAFSA
- A combination of the above
The interest rate on Federal Direct PLUS Loan varies each year. The interest rate for a loan taken in any given year is fixed for the life of that specific loan.
Interest accrues from the time of disbursement. Parents can make interest only payments to keep interest accrual to a minimum.
If a parent does not pay the interest before entering repayment, the interest will be capitalized, meaning the interest will be added to the principal. Then the parent will be paying interest on their interest.
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Direct PLUS Loans have an original fee which are taken out of each disbursement.
Currently, the fee is equal to 4.236% of the disbursement. So if a parent borrowed $1000 they would receive $957, but they would owe back $1000.
The amount of Federal Direct PLUS Loan that can be borrowed in any given year is equal to the Cost of Attendance (COA) minus other aid received.
The amount of PLUS loan that appears on the student's award is the maximum for which they may be eligible. However, parents should only borrow what is needed to pay for expenses owed directly to UM.
Sample Loan Repayment Schedule
A parent who borrows $30,000 at an average interest rate of 7% and uses the standard repayment schedule (120 equal payments) will have monthly payments of $348. When the loan is paid in full after 10 years they will have paid a total of $41,799.
To receive a customized loan repayment schedule, which shows multiple repayment options, a parent can access the US Department of Education's Repayment Estimator.
Completing the Annual Direct PLUS Loan Request
Each academic year that the parent wants to take out a Federal Direct PLUS Loan they must complete a Direct PLUS Loan Request through StudentLoans.gov. This initiates the credit approval process which is then good for 180 days.
Completing the Master Promissory Note
The first time a parent borrows on behalf of a specific student they must sign a Master Promissory Note (MPN) through StudentLoans.gov.
A new MPN does not need to be completed in subsequent years unless the parent is borrowing on behalf of a second student.
Parents who have an endorser on their loan are required to sign a new MPN each year an endorser is used.
Options if Loan Denied
Parent borrowers may attempt to override the credit decision by either obtaining an endorser (co-signor), or choosing to document extenuating circumstances relating to the reason they were declined. Once either action is taken the parent must complete PLUS Counseling on StudentLoans.gov.
If one parent is denied due to an adverse credit evaluation and he/she does not request a second review it is not required that any other parent apply. However, that also does not prevent a different parent from applying.
If a parent is denied the Federal Direct PLUS Loan the student may be eligible to receive additional unsubsidized loan funds by submitting UM's Parent PLUS Denied/Unsubsidized Request Form.
Generally, a Federal Direct PLUS Loan will be for the full academic year, the money being disbursed in two payments, half each term.
When the funds are disbursed they are used to pay the balance owed to the school first. If there are excess funds they will be paid as a refund, to help cover educational expenses not charged by UM.
When completing the Direct PLUS Request at StudentLoans.gov the parent indicates whether they want a refund to be sent to them or the student.
Repayment of a Federal Direct PLUS Loan is the parent borrower's responsibility. They have the option of beginning repayment immediately (60 days after the loan is fully disbursed) or waiting until the child ceases to be enrolled at least half-time (6 credits). The repayment option is chosen during the Direct PLUS Request.
The standard repayment plan requires that the parent pay a minimum of $50 a month and have the loan paid off in ten years.
Parents who are having difficulty making payments should contact their loan servicer as there are many options available to prevent them from going into default on their loans. Parents can find the contact information for their loan servicer by logging into NSLDS.ed.gov using their FSA ID.
If a parent is having difficulty getting cooperation from their loan servicer they can contact the US Department of Education's Loan Ombudsman's Office.
National Student Loan Data System (NSLDS)
Information about a student's loan is submitted to the National Student Loan Data System (NSLDS). Schools, lenders, servicers and guarantors authorized by the US Department of Education have access to the information in NSLDS.
Students and parent borrowers can also access the information recorded in NSLDS using their FSA ID.