Federal Direct PLUS Loan
What are Federal Direct PLUS loans?
The Federal Direct Parent Loan for Undergraduate Students (PLUS) is a credit-based loan made available through the Direct Loan Program which aids parents in helping to pay for the education of their dependent children. The PLUS is not based on financial need but may not exceed cost-of-attendance in combination with other aid.
A dependent child is defined as one who:
- is under the age 24
- is not considered married as of the date of FAFSA filing
- will not be enrolled in a graduate or professional degree (master’s or doctorate) program
- is not currently serving on active duty in the U.S. Armed Forces for purposes other than training,
- is not a veteran of the U.S. Armed Forces,
- does not have legal dependents for whom they provide more than half of their financial support
- is not an orphan, foster child, or ward/dependent of the court at any time since age of 13,
- is not an emancipated minor or in legal guardianship, or were when reaching the age of majority in your state (NOTE: The United States Department of Education does not recognize Emancipation of a Mississippi Resident as being valid to establish independent student status for Federal Financial Aid.),
- is not an unaccompanied youth, or are/were homeless or at risk of being homeless
Option to defer payment until student graduates or drops below half time enrollment.
- A cost-effective alternative to depleting savings or retirement accounts, using current income or borrowing against home equity.
- For loans with a first disbursement date between July 1, 2020, and June 30, 2021, the interest rate is fixed at 5.30%.
- For loans with a first disbursement date between July 1, 2021, and June 30, 2022, the interest rate is fixed at 6.28%.
- There is no prepayment penalty.
- The credit criteria are generally more lenient than for private loans.
- In cases of economic hardship, repayment may be deferred for up to three years.
- In the event of permanent disability or death of the borrower or student, your loan will be forgiven.
An eligible credit worthy parent is defined as natural, adoptive or in some cases step-parent (if listed on the FAFSA). If a Non-FAFSA filing parent wishes to borrow a Parent PLUS Loan, then additional eligibility confirmation is required prior to disbursement. The student must be enrolled in school at least half-time and must maintain Satisfactory Academic Progress. The Office of Financial Aid determines the amount of Direct PLUS loan eligibility in accordance with federal requirements.
Eligibility for the Direct PLUS loan depends on a modest credit check that determines if the parent has what is termed an “adverse credit history”.
Your credit history may be considered adverse if you are experiencing any of the following credit conditions:
- Bankruptcy discharge within the past five years.
- Voluntary surrender of personal property to avoid repossession within the last five years.
- Repossession of collateral within the last five years.
- Foreclosure proceedings started.
- Foreclosure within the last five years.
- Conveying your real property that is subject to a mortgage (by deed) to your lender to avoid foreclosure (deed in lieu of foreclosure).
- Accounts currently 90 days or more delinquent.
- Unpaid collection accounts.
- Charge-offs/write-offs of federal student loans.
- Wage garnishment within the last five years.
- Defaulting on a loan, even if the claim has been paid.
- Lease or contract terminated by default.
- County/state/federal tax lien within the past five years.
If a parent is denied for a Direct PLUS Loan, then the dependent student may be eligible to borrow an additional Direct Unsubsidized loan in the student’s name. The typical additional loan amount is $4,000 for Freshmen and Sophomores and $5,000 for Juniors and Seniors. Please note that if one parent is approved and another parent is denied for the same student, then the dependent student is ineligible for the additional Direct Unsubsidized loans per federal regulations.
How Much Can Be Borrowed?
Parents may borrow up to their student’s total cost of attendance less other financial aid received such as grants and scholarships. On the student’s financial aid award package this is listed as an “estimated Credit based loan,” which will show you how much could potentially be applied for to be borrowed. The total cost of attendance is determined by the Office of Financial Aid based on an average cost for tuition, books, room and board, travel, and miscellaneous expenses for the academic year. It is important that each family fully understand how a Direct PLUS loan will impact them financially. Most financial experts advise that one should not incur debt (excluding mortgage debt) that results in total monthly payments (debt-to-income ratio) exceeding 20% of your monthly gross income.
For loans with a first disbursement date between July 1, 2020, and June 30, 2021, the interest rate is fixed at 5.30%.
For loans with a first disbursement date between July 1, 2021, and June 30, 2022, the interest rate is fixed at 6.28%.
Each Federal Direct Loan carries an origination fee that is determined by the Department of Education. This is a percentage of the loan amount that is deducted proportionately from each loan disbursement. This means that the amount that is disbursed (the net amount) will be less than the amount you borrow (the gross amount). You are responsible for repaying the total amount that you borrow, not only the amount that you actually received.
As an example, for a $1,000 Parent PLUS Loan disbursement, the current origination fee would be $42. For a $10,000 disbursement, the origination fee would be $424. Students and parents should plan accordingly for this difference.
For loans made from October 1, 2020, to September 30, 2021, the origination fee is 4.228%.
For loans made from October 1, 2021, to September 30, 2022, the origination fee is 4.228%.
How do my parents process a Federal Direct PLUS application?
- If eligible, a student will be awarded an Estimated Credit-Based Loan on their Financial Aid Award Notification. A FAFSA must be filed to establish eligibility.
- Parent borrowers who wish to utilize the Direct PLUS program should have their student accept the estimated Direct Credit-based Loan on the Award Notification indicating the amount desired.
- To apply, the parent borrower will apply online at studentaid.gov. Borrowers will enter school and loan information, borrower and student information, and consent to a credit check and sign the PLUS Master Promissory Note (MPN). The MPN should be reviewed for accuracy before signing.
- The Direct Loan Program will conduct a credit investigation and notify the parent as to approval or denial.
- If the loan is denied, the student should contact the Office of Financial Aid about other borrowing options. The parent borrower may also appeal a denial decision with or without a co-signer with the Department of Education.
- If approved, loan proceeds will be sent directly to the University. The disbursement will reflect the amount of the loan less origination fees. The proceeds will be applied to the students account to clear any balances. Remaining funds will be direct deposited or mailed directly in the form of a paper check to the parent borrower.
Please visit studentaid.gov where you can apply for the Parent PLUS.
Please be aware that any excess funds from Direct PLUS loans will be sent directly to the parent borrower. While the Department of Education’s Direct PLUS application asks parents whether they want any funds to go to the student or the parent, The University of Mississippi sends all Direct PLUS excess funds exclusively to the parent borrower.
If the parent borrower did not set up direct deposit with the Bursar, then any Direct PLUS excess funds will be sent via paper check to the parent borrower’s address.