For those needing to borrow money to pay for college, experts recommend turning to federal student loans first. Generally, federal loans have lower interest rates and added borrower protections than other financing options. But federal PLUS Loans are very different from other federal student loans.

As of the end of 2023, 5.4 million borrowers have outstanding PLUS Loans, owing a combined $212.5 billion. Although PLUS Loans are common, they have higher rates and fees than other federal student loans. Before applying for a federal PLUS Loan, learn about their rates, terms, and repayment options.

What are PLUS Loans?

A federal Direct PLUS Loan is one of the four types of federal student loans that the Department of Education issues:

• Direct Subsidized: For undergraduate students only

• Direct Unsubsidized: For undergraduate and graduate students

• Direct PLUS: For graduate and professional students and for parents borrowing on behalf of a child

• Direct Consolidation: For borrowers with existing federal student loans

However, PLUS Loans are split into two categories, serving different groups: Grad PLUS and Parent PLUS.

Grad PLUS

Grad PLUS Loans are specifically for graduate or professional students, such as those pursuing a master of business administration (MBA) or attending medical school. Students must be enrolled at least half-time at an eligible school, and their program must lead to a graduate or professional degree or certificate.

Parent PLUS

While Grad PLUS Loans are only for graduate-level students, Parent PLUS Loans are for parents of undergraduate students. The parent will take out a loan in their own name to pay for their child's education, and the parent is the only person legally obligated for the loan's repayment; the child has no obligation to repay the loan.

Parent PLUS Loans are limited to biological or adoptive parents. Other relatives, including legal guardians, are not eligible.

Federal Direct Loans vs. federal PLUS Loans: What's the difference?

In the past, several forms of federal loans were available, including Federal Family Education Loans and Perkins Loans. However, those programs ended. Currently, the Department of Education only issues loans under the William D. Ford Federal Direct Loan program.

PLUS Loans are part of the federal Direct Loan program, but they function quite differently from the other Direct loans. There are five key differences:

1. Rates and fees

Federal student loans tend to have lower rates than other forms of education loans. As of the 2023-2024 academic year, Direct Subsidized and Unsubsidized loans for undergraduate students are at 5.50%, and they have a disbursement fee of 1.057% of the loan amount.

PLUS Loans tend to be significantly more expensive; Grad PLUS and Parent PLUS have the highest rates of any federal loan. The current rate is 8.05%, and the disbursement fee is 4.228% of the loan amount.

2. Grace periods

Most federal loans have a built-in six-month grace period; the student has six months after they graduate or leave school before payments are due. In the case of Direct Subsidized loans, the government covers the interest that accrues while you're in school and during the grace period.

That's not the case with PLUS Loans. With Grad PLUS Loans, the loan is automatically deferred while the student is in school, but interest accrues and is capitalized when the student enters repayment.

Parent PLUS Loans don't have a grace period. Parents can opt to defer repayment until after the child graduates. However, interest will accrue while the student is in college and will be capitalized when the loan enters repayment.

3. Borrowing limits

Federal Direct Subsidized and Unsubsidized loans have strict annual and aggregate borrowing caps. Depending on the student's dependency status, year, and loan type, the annual limit ranges from $3,500 to $20,500, and the aggregate limit ranges from $23,000 to $138,500.

By contrast, PLUS Loans have no annual or aggregate maximums. Parents and students can borrow up to the total cost of attendance.

4. Eligibility

Unlike other types of loans, federal student loans have no minimum income or credit score requirements. And in the case of Direct Subsidized and Unsubsidized Loans, there is no credit check at all.

PLUS Loans are the only federal loans that do require a credit check. However, a low credit score or a few missed payments aren't enough to cause you to be rejected for a loan. The Department of Education looks for an adverse credit history, which means your credit report shows one of the following issues:

• One or more accounts with a combined outstanding balance of $2,085 that are 90 or days delinquent, placed in collections or charged off within the past two years

• During the past five years, you have been subject to one of the following:

  • Default determination

  • Discharge of debt in bankruptcy

  • Foreclosure

  • Repossession

  • Tax lien

  • Wage garnishment

  • Write-off of federal student aid

If you have an adverse credit history, you may qualify for a PLUS Loan by adding an endorser — a friend or relative with good credit — that guarantees the loan.

5. Repayment options

With federal Direct Loans, the standard repayment plan for all loans is 10 years. However, Direct Subsidized and Unsubsidized loans are eligible for income-driven repayment (IDR) plans, which can significantly reduce the borrower's payments. Borrowers can also opt for a graduated or extended repayment plan, allowing them to extend their payments for up to 25 years.

Grad PLUS Loans are eligible for all federal repayment plans, including all of the income-driven repayment (IDR) plans. However, Parent PLUS Loans are more restrictive.

In their existing state, Parent PLUS Loans aren't eligible for IDR plans, nor can borrowers qualify for Public Service Loan Forgiveness (PSLF). However, there is a workaround. Borrowers with Parent PLUS Loans can consolidate with a Direct Consolidation Loan. Once the loan is consolidated, they are eligible for one of the IDR plans — income-contingent repayment — and can work toward PSLF.

How to apply for PLUS Loans

The application process for PLUS Loans works differently than for other federal loans. With federal Direct Subsidized and Unsubsidized Loans, the borrower completes the Free Application for Federal Student Aid (FAFSA), and they are automatically considered for federal loans. With PLUS Loans, the borrower needs to specifically request them.

Borrowers intending to apply for PLUS Loans have to complete the FAFSA, but they also must submit a separate PLUS Loan application. The FAFSA must be submitted before you can apply for a PLUS Loan.

You can usually apply for a PLUS Loan online, but check with the selected college's financial aid office first; some schools have different procedures for PLUS Loans.

Alternatives to PLUS Loans

Although PLUS Loans can be useful tools for financing education expenses, they are the most expensive form of federal loans, with the highest rates and fees. And because they have no caps on how much you can borrow, you can easily end up taking on more debt than you can afford. It's important to consider how PLUS Loans will fit into your budget and borrow the least amount possible.

Additionally, Parent PLUS Loans are limited to biological and adoptive parents; other relatives or carers are ineligible, so if you need financing — or want to save money — consider these other options.

Grants and scholarships

There are billions of dollars available to college and graduate students in the form of grants and scholarships. And unlike student loans, they don't have to be repaid. These awards can come from colleges, nonprofit organizations, private companies, and even generous individuals. Use the BigFuture Scholarship Search tool to find available opportunities.

Work-study programs

Federal work-study programs are frequently overlooked, but they can help cover some of your added expenses, including textbooks or supplies. With a work-study program, you work part-time — either on-campus or off for a local employer — and earn money to put toward your education. On average, students earn about $1,800 per year from work-study programs.

Private student loans

Private student loans are available to both graduate students and parents.

If you are not the adoptive or biological parent and want to help the child pay for school, private student loans can be useful alternatives. They also can be a good option if you have excellent credit; depending on your creditworthiness, you may qualify for a loan with a lower rate than you'd get with a PLUS Loan.

Private loans can have fixed or variable interest rates, and lenders typically don't charge disbursement fees. However, they don't have the repayment benefits or perks of federal student loans, so you won't qualify for IDR plans or loan forgiveness, so private loans tend to be best used as a last resort after exhausting other aid.