What Are Some Reasons to Avoid PLUS Loans? First, PLUS loans have no automatic grace period. Then there's the fact they aren't eligible for most IDR plans. Then, borrowing too much is easy to do, and finally, they're nearly impossible to get out of, even in bankruptcy.
For Direct PLUS Loans first disbursed on or after July 1, 2024, and before July 1, 2025, the interest rate is 9.08%. This is a fixed interest rate for the life of the loan. Additionally, there is a loan fee on all Direct PLUS Loans.
According to Federal Student Aid, Grad PLUS loan repayment begins either six months after you graduate, if you leave school, or if you drop below half-time enrollment. During the time you're in school or aren't required to make any payments, interest does accrue on your loan.
PLUS loans can help pay for education expenses not covered by other financial aid. The U.S. Department of Education makes Direct PLUS Loans to eligible parents and graduate or professional students through schools participating in the Direct Loan Program.
Parent PLUS loans are not subsidized, so interest begins to accrue on the outstanding loan balance as soon as funds are disbursed and continues to accrue even if the loan is in deferment. This is not a loan to the student.
You can take a tax deduction for the interest paid on student loans that you took out for yourself, your spouse, or your dependent. This benefit applies to all loans (not just federal student loans) used to pay for higher education expenses. The maximum deduction is $2,500 a year.
An important thing to remember is that interest on your grad school loan starts accruing right away — even while you're still in school. So the longer you're in grad school, the more interest charges you'll have waiting for you when you start repayment.
Direct PLUS loan amounts are limited to the cost of attendance minus any other financial assistance received. Interest accrual: Interest begins to accrue as soon as the loan is fully disbursed (paid out). Graduate and professional students are responsible for interest payments on the PLUS loan while in school.
Fortunately, student loans aren't taxable, so you don't report student loans as income on your tax return, and you don't have to pay taxes on certain types of financial aid.
Parent PLUS loans can potentially be forgiven after 10 years under specific conditions, such as through the Public Service Loan Forgiveness (PSLF) program after consolidation into a direct consolidation loan. Parent borrowers must enroll in the Income-Contingent Repayment (ICR) plan to qualify for PSLF.
Your Last Resort: Private Loans
These loans have different repayment options than federal loans and will most likely cost you more in interest. Also, they may not have the same kinds of protections in case of disability or death as do the federal loans. Private loans generally should be taken out only as a last resort.
If you're a parent or graduate student seeking a Direct PLUS Loan, one of the requirements to qualify is that you must not have an adverse credit history. If your application is denied because of an adverse credit history, don't give up. You still have options.
While you may consolidate Parent PLUS Loans with a Federal Direct Consolidation Loan, refinancing is the only way to lower your interest rate or transfer a Parent PLUS Loan to the student. This option comes with a variety of pros and cons that you will want to explore before you make a decision.
For example, you usually don't want to combine Parent PLUS loans with any other type of loan, because consolidating them together could mean that you will only be eligible for an Income-Contingent Repayment (ICR) plan, which is usually more expensive than other IDR plans.
Higher interest rates than other federal loans
Over time, this can result in a big difference. With the parent PLUS loan at a higher interest rate, you'd be paying thousands of dollars more in interest than the unsubsidized federal loan.
Interest rates on PLUS Loans are fixed. The current interest rates for new PLUS Loans in 2024 - 2025 are 9.08% for parents of undergraduate students (Parent PLUS Loans) and for graduate students (Grad PLUS Loans).
How to Use the Double Consolidation Loophole: The key to using the double consolidation loophole is to consolidate each of your Parent PLUS Loans twice. In this scenario, a borrower can have as few as two Parent PLUS Loans.
While you are in school, Direct Unsubsidized and Direct Grad PLUS loans accumulate interest daily starting from the date you receive each loan (disbursement date).
You may be researching how to pay for tuition and other expenses. You have another decision to make as well – what to do about any undergraduate student loan debt you may have. If you attend graduate school at least half-time, your loans can be deferred. That means you don't have to make payments.
Your interest charges will be added to the amount you owe, causing your loan to grow over time. This can occur if you are in a deferment for an unsubsidized loan or if you have an income-based repayment (IBR) plan and your payments are not large enough to cover the monthly accruing interest.
Parent PLUS loans are made directly to parents for their child's education. Under the current rules, parents cannot transfer these federal loans to a child, and they are solely responsible for paying back the loan.
Parent PLUS loans do not have prepayment penalties, You can pay off the loans sooner than 10 years by making extra payments on the debt. Bring in a new source of income or cut items from your budget to get rid of the loan even faster.