Direct PLUS Loans, Better College Loans for Parents and Grads

Unlike the Stafford loans, PLUS loans have lower interest rates under the Direct loan program, compared to the FFELP.

Borrowers will now pay a federal interest rate of 7.9% instead of 8.5%.

These rates are for Grad PLUS as well as Parent PLUS loans.

As far as loan fees go, federal Direct PLUS loans have a 4% origination fee, but they also give a 1.5% upfront interest rebate, for a total fee of 2.5%. (This rebate will be added back to the principal if any of the first 12 payments are missed.)

FFELP PLUS loans had fees which were between 3 and 4%.

Federal Plus Loans Approval Rates

• More than a 90 days delinquency should be regarded as a bad credit score
• (Between January 1, 2007 and December 31, 2009, it was more than 180 days for a mortgage or medical bill payment.), or
• A default, a bankruptcy, foreclosure, repossession, tax lien, wage garnishment, or write off of an FSA debt going back 5 years only

Under the FFELP, lenders were allowed to turn down applicants using more rigid credit requirements (similar to those used to identify bad credit for private loans). The effect on approval rates for parents was easy to see, because their children became eligible for a higher unsubsidized Stafford loan limit. There were about twice as many turn-downs for parents under the FFELP than under the Direct loan program.

The effect on Grad PLUS applicants was not as clear to see, because these students did not become eligible for more Stafford money. (Regulations for both programs state that applicants cannot be rejected for PLUS loans because they have no credit history.) The rejection rate was probably comparable, though.

These are the projected subsidy rates for each type of Direct loan (across the lifetime of the loan) according to the Department of Education's Fiscal Year 2011 Budget Request:

Direct PLUS loans help pay for subsidized Stafford loans and Pell grants. Now this program is getting some competition from private lenders, such as Wells Fargo student loans. If these products are successful in luring away borrowers, federal rates might drop.

Student Debt Consolidation Loans

If you would prefer to cosign a loan for a student, rather than borrow the money yourself, you will need to research private student loans.