The PLUS Loan for Parents is a federal education loan program many families utilize to pay for tuition, room and board not covered by financial aid or other loans, such as Direct Student Loans, provided to the student. In the PLUS Loan for Parents program, the borrower is a parent. A parent can borrow up to a student’s Cost of Attendance minus other financial aid including other student loans. However, credit is a factor in determining eligibility for PLUS. As such, not everyone will be approved. While the credit criteria used to determine approval for PLUS are not as stringent as they are for other consumer loans, a parent borrower still needs to meet a few credit-based conditions in order to receive financing. If those conditions aren’t met, a PLUS loan denial will be the result. Don’t give up hope, there are still a few options left open. We’ll go over each, but let’s start by looking at why you may be denied PLUS loan in the first place.
In general, you will denied if you have adverse credit consisting of any of the following:
- Bankruptcy discharge within the past five years
- Voluntary surrender of personal property to avoid repossession within the last five years
- Collateral repossession within the past 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
In order to determine if one of those conditions applies, a credit check will be performed. If denied, you will receive an adverse action letter with an explanation for the particular reason(s) for the denial.
If you have been denied a PLUS loan, you still have a couple of options you can pursue to pay for your child’s education.
- Get a cosigner. If you are denied PLUS, you can have someone other than the student endorse (cosign) your loan. An endorser becomes financially obligated to repay the loan if you cannot. Most parents turn to another family member to act as an endorser, but you are not limited to having a family member serve in this role.
- File an appeal. If you have extenuating circumstances that led to adverse credit and you can document it, you can request reconsideration. Approval upon reconsideration is at the sole discretion of the U.S. Department of Education.
- Ask for additional unsub. If you cannot get someone to endorse your loan or do not have extenuating circumstances, the student may be able to borrow additional funds through the Direct Unsubsidized Student Loan program. The student will need to contact the financial aid office at their school to determine the correct steps to take to make this request. Freshmen and Sophomores may borrow up to an additional $4,000. Juniors and Seniors may borrow up to $5,000. The school will determine the amount based on how much room is left in the student’s budget (COA minus other aid including loans).
- Consider borrowing against other assets. If you were using PLUS as a way to avoid dipping into retirement funds or home equity, those may also be options you could pursue. However, we strongly encourage you to seek the guidance of a professional should you move forward with this option.
- Seek light elsewhere. If all else fails, consider a less expensive alternative or, in the worst case, defer enrollment for a year and work on a budget and plan that includes working and saving toward paying tuition or resolving credit issues.
Whenever you borrow, remember to borrow only what you truly need. Education loans, in most cases, cannot be discharged in bankruptcy and there are expensive consequences for failing to repay.