What Is a Direct PLUS Loan? A Complete Guide for Parents and Grad Students

The US government offers various federal student loans for undergraduate students, graduate students, and parents. 

The Federal Direct PLUS Loan is an unsubsidized federal education loan for graduate students and parents of dependent undergraduate students. Students and parents can access this loan after a student exhausts eligibility for Federal Stafford Loans.

If you or your child need additional financial aid beyond Stafford Loans, the Federal Direct PLUS Loan could be an option. But is it the best choice? In this guide, we’ll cover everything you need to know—costs, eligibility, and whether a PLUS Loan is right for you.

Federal Direct PLUS Loan Quick Facts

Types of Federal PLUS Loans

There are two versions of the Federal PLUS Loan: the Federal Parent PLUS Loan and the Federal Graduate PLUS Loan. The Parent PLUS and Graduate PLUS loans are nearly identical, apart from borrower eligibility and certain provisions. The Federal Graduate PLUS Loan first became available on July 1, 2006, through an amendment to the Federal Parent PLUS Loan.

Both loans require the college student or borrower to have US citizenship or permanent residency and no adverse credit history. As long as those two criteria are met, PLUS loan borrowers are not required to have good credit, such as a high credit score, minimum income threshold, or low debt-to-income ratio.

However, PLUS loan eligibility is slightly different for Parent vs. Grad PLUS Loans: 

Who Qualifies for a Direct PLUS Loan?

The Federal Direct PLUS Loan is available to graduate students and parents of dependent undergraduate students who meet these requirements:

For Parent PLUS Loans:

• The borrower must be a biological, adoptive, or step-parent of a dependent undergraduate student.
• The student must be enrolled at least half-time in an eligible degree or certificate program.
• Both the borrower and the student must be U.S. citizens or eligible non-citizens.
• The borrower must not have an adverse credit history, though income and credit scores are not considered.
• The student and parent must complete the FAFSA.

For Grad PLUS Loans:

• The borrower must be a graduate or professional student enrolled at least half-time.
• The borrower must be a U.S. citizen or eligible non-citizen.
• Must not have an adverse credit history (no minimum credit score required).
• FAFSA is required.

Even if borrowers have an adverse credit history, they may still qualify by adding an endorser (co-signer) or documenting extenuating circumstances.

Interest Rates on Federal PLUS Loans

The interest rates on Federal PLUS Loans are fixed and change only for new loans each July 1. The new interest rate is based on the last 10-year Treasury Note Auction. Interest rates are the same for both Federal Parent PLUS Loans and Federal Graduate PLUS Loans.

The interest rates are set according to this formula:

The most recent interest rates are:

Borrowers who sign up for auto-debit, where the monthly loan payments are automatically transferred from the borrower‘s bank account to the loan servicer, may receive a 0.25% interest rate reduction as an incentive.

Is the Federal Direct PLUS Loan Subsidized or Unsubsidized?

The Federal PLUS Loan is unsubsidized. Interest begins accruing immediately after disbursement.

The federal government does not pay the interest on the Federal PLUS Loan.

If the borrower does not pay the interest as it accrues, it will be added to the loan balance (capitalized) when the loan enters repayment, which increases the debt. After interest is capitalized, more interest will be charged on the interest, causing the loan to grow faster.

Loan Fees on Federal PLUS Loans

Federal Direct loan borrowers pay an origination fee of 4.228%, which is four times the fee on Federal Stafford loans.

Loan fees are based on the rate effective on the loan’s disbursement date. A loan fee is typically deducted proportionately from each disbursement, and borrowers can also choose to have the fee added to their loan balance.

Loan fees change each October 1, based on the federal budget, but have remained the same since 2020.

Student loan limits on Federal PLUS Loans

Federal PLUS Loans have an annual limit equal to the college’s cost of attendance minus other aid received. However, they don’t have aggregate loan limits. The student’s college determines how much parents can borrow through the Federal Parent PLUS loan and how much a graduate student can borrow through the Federal Grad PLUS loan.

Suppose the parent of a dependent undergraduate student is denied a Federal PLUS Loan. In that case, the student becomes eligible for higher unsubsidized Federal Stafford Loan limits, the same limits available to independent undergraduate students.

Since the Federal Parent PLUS Loan allows parents to borrow almost unlimited amounts of money for their children, they must take care of it to avoid over-borrowing. Parents should borrow no more for all their children than their annual income. If the total Federal Parent PLUS Loan debt is less than the parent’s annual income, the parents should be able to repay the loans in 10 years or less. If retirement is less than 10 years away, they should borrow proportionately less money. For example, if retirement is in just 5 years, the parents should borrow half as much.

See also: Complete Guide to Parent Loans

How to Apply for Federal PLUS Loans

The Federal PLUS Loan is disbursed through the college financial aid office, so they administer the application process and determine the maximum amount you can borrow. They will ask you to complete a PLUS loan application at the Studentaid.gov website. You may be required to complete entrance counseling.

PLUS Loan borrowers will also have to sign a Master Promissory Note (MPN) at Studentaid.gov. The MPN is good for a continuous period of enrollment at a specific college for up to 10 years.

Loan Disbursement

The federal government sends Federal PLUS Loan funds directly to the college. The college financial aid office then applies the loan funds to tuition and fees (plus room and board if the student lives on campus).

Any remaining credit balance usually is “refunded” to the student or parent within 14 days. (Parents can authorize the college to refund any leftover Federal Parent PLUS loan proceeds to the student.) The 30-day delay for first-time, first-year borrowers does not apply to Federal Parent PLUS Loans, which are disbursed in two installments.

Loan Repayment

Repayment begins within 60 days of full disbursement. However, parents may request a deferment to delay repayment until the end of the six-month grace period after the student graduates or drops below half-time enrollment. Parents can also defer repayment if the student is enrolled at least half-time in college. Interest will accrue and be added to the loan balance if it isn’t paid.

Repayment Options for Federal Direct Parent PLUS Loans

• Income-Contingent Repayment (ICR) only if the parent includes the loan in a Federal Direct Consolidation Loan after July 1, 2006. 
• Public Student Loan Forgiveness
• Standard 10-year repayment
• Extended Repayment
• Graduated Repayment

Repayment Options for Federal Direct Grad PLUS Loans

• All repayment plans, including all income-driven repayment plans

Transferring Direct PLUS Loans

Parents cannot transfer a Federal Parent PLUS loan to the student unless they refinance with a private lender, giving up federal loan protections.

Loan Cancellation

Federal Direct PLUS loans are eligible for discharge upon the death or total and permanent disability of the borrower. In addition, Federal Parent PLUS loans may be discharged upon the death (but not disability) of the student beneficiary.

Federal PLUS loans are also eligible for other loan cancellation provisions, such as the closed school discharge, identity theft discharge, bankruptcy discharge, unpaid refund discharge, and false certificate discharge. They may be eligible for loan forgiveness, such as public service loan forgiveness, which requires working in a specific occupation for a specified period while repaying the loans.

Alternatives to the Federal PLUS Loan

If the student has exhausted eligibility for the Federal Stafford Loan, alternatives to the Federal Direct PLUS Loan include private student loans and private parent loans. Generally, private loans require a creditworthy cosigner, usually the parent, but they may come with a lower interest rate and no origination fees.

Pros and Cons of Federal Direct PLUS Loans

When considering the Federal Direct PLUS Loan compared to other borrowing options, consider the pros and cons. 

Pros of Borrowing Direct PLUS Loans

• The loan limit isn’t limited like traditional federal student loans. You can borrow what you or your child needs up to the cost of attendance for that academic year, less any other financial aid.
• Your interest rate remains fixed for the lifetime of the PLUS loan. This helps you plan your repayment and not worry about unexpected surprises regarding your debt.
• Parents can request a PLUS loan deferment while the student is in school, offering more loan repayment options.
• Parent PLUS loans are eligible for the standard repayment plan or other flexible options, such as graduated or extended repayment plans. 
• A federal PLUS Parent loan may be eligible for Income Contingent Repayment or Public Service Loan Forgiveness if consolidated into a Direct Consolidation Loan. 
• A Parent PLUS loan could also be eligible for Public Service Loan Forgiveness if consolidated into a Direct Loan.

Cons of Borrowing Parent Direct PLUS Loans

• Direct PLUS loans have higher interest rates than other federal student loans.
• Direct PLUS loan borrowers also pay an origination fee, which could make the loan more expensive than a private loan.
• Borrowers must undergo a credit check, and adverse credit history might limit eligibility. 
• Unlike Stafford Loans, Direct PLUS Loans allow borrowing up to the full cost of attendance, making it easy to over-borrow. Parents and students should carefully assess how much they need to avoid excessive debt.
• You must start paying parent loans back right away unless you request a deferment.
• The parent PLUS loan isn’t available to as many income-based repayment options.

Conclusion

A PLUS Loan may be a good choice if you need a federal loan with flexible repayment options. However, a private loan could offer lower rates and no fees if you have strong credit. Be sure to compare all options before choosing.

Interested in exploring other student loan options? Check out our list of the best private student loans for 2025!