Direct PLUS Loan: Definition and What It Is
A Direct PLUS Loan is a federal loan available to graduate and professional students, as well as parents of dependent undergraduate students (Parent Plus Loan). Unlike other Direct Loans, PLUS Loans require a credit check. Borrowers with adverse credit history may be denied or required to obtain an endorser, which functions similarly to a cosigner.
The PLUS Loan carries a fixed interest rate set annually by Congress and a loan origination fee deducted from each disbursement. Borrowing limits are tied to the cost of attendance minus other financial aid received, which means PLUS Loans can cover the full remaining cost, making them a common way families fund education costs after other federal financial aid is exhausted.
Why it Matters
PLUS Loans are more expensive than subsidized or unsubsidized loans. The interest rate is higher, the origination fee is larger, and the terms require careful consideration. Parents who take PLUS Loans are the sole legal borrower. If the family arrangement is that the student will make the payments, that informal agreement has no standing with the lender. The parent is liable regardless.
Graduate students who maximize PLUS Loan borrowing over multiple years in a high-cost program can exit with balances well above $100,000. PLUS Loans are eligible for income-driven repayment options, but the path to forgiveness is longer than for other loan types. Yrefy's article on repayment options covers how PLUS Loans fit within the federal repayment framework.
Example
A parent takes out $18,000 in Direct PLUS Loans to cover their child's junior year expenses after other aid is applied. Repayment begins 60 days after the final disbursement of the academic year. Unlike the child's Direct Unsubsidized Loans, which do not begin repayment until after graduation, the parent's PLUS Loan enters repayment immediately unless they request deferment. The distinction is one many families miss until the first bill arrives.
