What is a Direct PLUS loan and how does it work?



  • Direct PLUS Loans, or Parent Loans for Undergraduate Students, are fixed rate loans for up to 30 years.
  • Contrary to what the name suggests, both parents and graduate students can get a Direct PLUS loan.
  • The interest rate on Direct PLUS loans for the 2021-22 academic year is 6.28%.
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What is a Direct PLUS loan?

Direct PLUS Loan stands for Parent Loan for Undergraduate Students. However, don’t let the name confuse you, as graduate students and professional students can take a loan as well as parents. You can get a Direct PLUS loan to pay for expenses not covered by other financial assistance offered by your school or your child’s school.

The US Department of Education is your lender and you cannot have bad credit to take a Direct PLUS loan. The maximum amount of credit you can receive is based on the cost of the visit minus any other financial assistance you or your child receives.

You will pay a fixed interest rate over the term of the loan, which is valid for up to 30 years. You will be making payments monthly or quarterly, and the first payment often needs to be made 60 days after the last payment is paid.

The rate for the 2021-22 academic year is set at 6.28%… Credit unsubsidizedThat is, interest will be calculated while you or your child are in school. Interest payments on federal student loans are currently on hold until September 30, 2021 due to the coronavirus pandemic.

You will also pay a loan disbursement fee of about 4.2%, which will be deducted from the loan repayment. There are no prepayment penalties when using a Direct PLUS loan, so you can repay it early without any commission.

Who can get a Direct PLUS loan?

Unfortunately, you cannot get a Direct PLUS loan as an undergraduate student – your parent will have to take it for you. If you are a graduate or professional student, you can get a Direct PLUS loan.

A Direct PLUS loan is commonly referred to as a PLUS parent loan when made for parentsand also as a loan Hail PLUS, when made for a graduate or professional student

How to apply for a Direct PLUS loan

Schools usually require you to apply for a Direct PLUS loan onlinealthough some schools have different application processes. To apply, you will need the following information:

  • Verified Federal Student Benefit Ticket
  • School name
  • Student’s name, social security number, date of birth, address, and phone number.
  • Parent’s address, phone number, and email (if you’re a parent)
  • Employer’s name, address and telephone number.

Completing the application will take approximately 20 minutes and must be completed in one session.

Pros and cons of a Direct PLUS loan

Alternatives to Direct PLUS Loan

Before considering a Direct PLUS loan, you must see what other financial assistance your or your child’s school offerings such as grants, scholarships, work-study, direct subsidized as well as unsubsidized loans… You often get this help for free or at a lower cost than with a Direct PLUS loan, so make sure you read the entire financial aid package before taking out this loan.

Private student loans may also be an option for parents as they allow you to pay for your child’s college tuition without holding you solely responsible for their debts. Private student loans often require a parent to be a co-regent and may offer lower interest rates if you have excellent credit. But private loans are often a worse option than PLUS loans because they tend to charge high rates if you have bad credit.

While Direct PLUS loans can be a good option for bridging the gap between what you can afford and what you need, make sure you understand where you are going before signing the dotted line for you or your child.

Ryan Wangman is a Research Fellow at Personal Finance Insider who writes about mortgages, refinancing, bank accounts, bank reviews, personal loans, and student loans. In his past writing experience on personal finance, he has written about credit ratings, financial literacy, and home ownership.


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