Definition
A Direct PLUS Loan is a type of federal financial aid for education. It is available to either graduate/professional students or the parents of undergraduate students. This loan can cover the cost of attendance not covered by other financial aid sources and requires a credit check to determine eligibility.
Key Takeaways
- Direct PLUS Loans are federal loans that graduate or professional students and parents of dependent undergraduate students can use to help pay for education expenses not covered by other financial aid.
- Eligibility for Direct PLUS Loans does not depend on credit scores, but does require that borrowers do not have adverse credit histories. The Department of Education checks credit history and loans are approved only if it’s satisfactory.
- Repayment of Direct PLUS Loans begins immediately after the entire loan amount is disbursed with a fixed interest rate set by the federal government. However, payment can be deferred while the student is in school at least half-time and for an additional six months after the student graduates, leaves school, or drops below half-time enrollment.
Importance
The Direct PLUS Loan is a crucial financial term because it refers to a federal loan program targeted towards parents of dependent undergraduate students and graduate or professional students in the United States to help cover education costs not covered by other financial aid.
It is important because it provides an option for those who might otherwise struggle to pay for education, thus expanding access to higher education.
These loans have a fixed interest rate and are not based on credit score, making them a suitable option for many households.
However, as this program borrows directly from the federal government, it comes with certain responsibilities and risks that borrowers must understand, which makes the understanding of this term vital.
Explanation
The Direct PLUS Loan serves a crucial purpose of providing funds for educational expenses that aren’t covered by other financial aid means. Specifically designed by the U.S.
Department of Education, these loans are designated for graduate or professional students or the parents of dependent undergraduate students. The idea is to supplement other financial aid that has been awarded and to cover the total cost of education, including tuition, room and board, books, and even personal expenses.
Direct PLUS Loans are particularly beneficial because they can fill the gap when other financial aid options such as scholarships, grants, and direct subsidized and unsubsidized loans are not enough. They enable students and parents to borrow up to the full cost of a student’s education, minus other financial aid received.
Additionally, these loans offer flexible repayment options and the possibility of loan forgiveness under certain circumstances, making higher education more accessible for many individuals.
Examples of Direct PLUS Loan
Higher Education: The most common use of Direct PLUS Loans is in the realm of higher education. For example, a parent could apply for a Direct PLUS Loan to help cover university expenses for their child, such as tuition, housing, books, etc., that aren’t covered by other financial aid. Such loans can help reduce the burden on students and allow them to better focus on their education.
Graduate/Professional Degree: Another example could be a student who already completed their undergraduate degree and is now pursuing a graduate or professional degree like law or medicine. This individual might apply for a Direct PLUS Loan to aid in meeting high tuition costs and other associated expenses.
Adult Education: Let’s assume an adult who wants to go back to school to change careers or enhance their skills. They may not have sufficient savings or income to support this decision. In this case, they might apply for a Direct PLUS Loan, even if they have children who are also in school. It provides them the financial flexibility they need to continue their education.
FAQs about Direct PLUS Loan
What is a Direct PLUS Loan?
A Direct PLUS Loan is a federal loan available to graduate or professional students and parents of dependent undergraduate students to assist with the cost of education expenses not covered by other financial aid.
Who is eligible for a Direct PLUS Loan?
Eligibility for a Direct PLUS Loan is determined by a credit check and other conditions. Graduate or professional students and parents of dependent undergraduate students can apply. The applicant should not have an adverse credit history.
What is the interest rate on a Direct PLUS Loan?
The interest rate on a Direct PLUS Loan is determined each year by the federal government and is usually fixed for the life of the loan.
When do I have to start repaying a Direct PLUS Loan?
Repayment for Direct PLUS Loans begins 60 days after the full amount of the loan is disbursed, but may be deferred while the student is in school at least half-time and for an additional six months after the student graduates, leaves school, or drops below half-time enrollment.
How can I apply for a Direct PLUS Loan?
To apply for a Direct PLUS Loan, you must complete the Free Application for Federal Student Aid (FAFSA) form. You must also complete a Direct PLUS Loan application and Master Promissory Note on the Federal Student Aid website.
Related Entrepreneurship Terms
- Parent Loan for Undergraduate Students (PLUS)
- Graduate PLUS Loan
- Federal Student Aid (FSA)
- Loan Repayment
- Cost of Attendance (COA)
