What Are PLUS Loans?
PLUS Loans are federal student loans that the U.S. Department of Education provides to graduate or professional students and parents of dependent undergraduate students to help cover education expenses not met by other forms of financial aid. These loans fall under the broader category of student loans, a form of financial aid. There are two types of PLUS Loans: Direct Parent PLUS Loans, for parents borrowing on behalf of an undergraduate student, and Direct Grad PLUS Loans, for graduate or professional students financing their own education36.
History and Origin
The foundation for federal student aid programs in the U.S. was laid with the National Defense Education Act of 1958, which introduced the first national student loans. This was followed by the Higher Education Act of 1965, which significantly expanded federal funding for higher education and established a more structured system of grants and loans34, 35.
PLUS Loans specifically emerged from the Higher Education Act. In 1980, Congress established Parent PLUS Loans, initially allowing parents to borrow up to $3,000 for their child's undergraduate education. The program was extended to graduate students in 1981, leading to what is now known as Grad PLUS Loans33. This expansion aimed to provide additional avenues for financing higher education, particularly for middle- and upper-income families32. In 2006, the federal government effectively removed the annual borrowing limits for Graduate PLUS Loans, allowing students to borrow up to their cost of attendance, minus any other aid30, 31.
Key Takeaways
- PLUS Loans are federal student loans available to graduate/professional students and parents of dependent undergraduates.
- They are administered by the U.S. Department of Education and can cover educational expenses up to the cost of attendance, less other financial aid received29.
- Applicants for PLUS Loans must not have an adverse credit history, though there are options to still receive a loan if adverse credit is present28.
- Interest rates are fixed, and repayment typically begins after the loan is fully disbursed, though deferment options are available.
Formula and Calculation
The maximum amount an individual can borrow through PLUS Loans is determined by the educational institution's calculated cost of attendance (COA) minus any other financial aid received. While there isn't a complex formula, the calculation can be expressed as:
Here, "Cost of Attendance" includes tuition and fees, room and board, books, supplies, transportation, and other personal expenses. "Other Financial Aid" includes grants, scholarships, and other federal student loans like Stafford Loans and Perkins Loans. This calculation ensures that the PLUS Loan only covers the remaining educational expenses.
Interpreting PLUS Loans
PLUS Loans serve as a crucial component of financial aid, primarily for those seeking to bridge the gap between other aid received and the total cost of higher education. For parents, a Parent PLUS Loan allows them to contribute directly to their child's educational financing, which can alleviate the need for the student to take on excessive amounts of private student loans. For graduate and professional students, Grad PLUS Loans provide a significant source of funding when other federal loan options or personal savings are insufficient to cover the extensive costs often associated with advanced degrees27.
The availability of PLUS Loans is particularly relevant for programs with high tuition, such as law or health-related fields, where other federal aid might not cover the full cost. The ability to borrow up to the cost of attendance provides flexibility, but it also necessitates careful consideration of debt management and future repayment capacity.
Hypothetical Example
Consider a graduate student, Alex, who is pursuing a master's degree with a total Cost of Attendance (COA) of $40,000 for the academic year. Alex has received a scholarship for $5,000 and has taken out $20,500 in unsubsidized Direct Loans (a type of federal student loan).
To cover the remaining educational expenses, Alex decides to apply for a Grad PLUS Loan. The maximum amount Alex can borrow through the Grad PLUS Loan program would be:
$40,000 (COA) - $5,000 (Scholarship) - $20,500 (Unsubsidized Direct Loan) = $14,500
Therefore, Alex could borrow up to $14,500 through a Grad PLUS Loan to meet the remaining cost of attendance. This example illustrates how PLUS Loans can complement other forms of financial aid to cover a student's educational costs.
Practical Applications
PLUS Loans are widely used in the realm of higher education finance. For many families and graduate students, they are a primary means of covering significant educational expenses not covered by other forms of student financial aid, such as grants or subsidized loans.
In particular, Grad PLUS Loans are frequently utilized by students pursuing advanced degrees, where costs can be substantial. A 2018 Government Accountability Office (GAO) report indicated that the Department of Education disbursed approximately $71 billion in Grad PLUS Loans to about 1.7 million unique borrowers between award years 2007 and 201726. The report also noted that doctoral professional practice program students, especially those in legal professions and health-related fields, accounted for a significant portion of those with higher Grad PLUS loan balances25.
Parent PLUS Loans allow parents to assist their dependent undergraduate children with college costs, serving as an alternative to private loans, which may have less favorable terms. These loans are often considered when a family's expected family contribution (EFC) is not met by other aid24. Both types of PLUS Loans offer various repayment options, including income-driven repayment plans for Grad PLUS loans and, in some cases, for Parent PLUS loans, which can adjust monthly payments based on a borrower's income and family size23.
Limitations and Criticisms
Despite their utility, PLUS Loans have faced criticisms and have certain limitations. One major concern revolves around the potential for high indebtedness due to the ability to borrow up to the full cost of attendance, which has historically lacked a lifetime limit21, 22. This can lead to substantial student loan debt, particularly for graduate students. A 2023 National Bureau of Economic Research (NBER) working paper, "PLUS or Minus? The Effect of Graduate School Loans on Access, Attainment, and Prices," examined the impact of the 2006 uncapping of graduate student borrowing. It found that while access to additional federal loans increased graduate student borrowing and shifted debt from private to federal sources, it did not significantly improve access to programs or increase persistence or degree receipt for constrained students. The paper also noted that federal borrowing and prices increased in programs more exposed to the expansion of credit19, 20.
Another point of contention, particularly with Parent PLUS Loans, is the credit check requirement. While it can help prevent loans from going to those with an adverse credit history, critics argue it may still allow significant borrowing without sufficient consideration of a family's overall financial health or ability to repay beyond the immediate future18. There have also been discussions and reports from organizations like the Government Accountability Office (GAO) concerning the Department of Education's tracking of federal student loan payments and borrowers receiving eligible forgiveness17. Recent data from the GAO highlighted that as of January 2024, nearly 10 million borrowers were past due on their federal loan payments, underscoring ongoing challenges in student loan repayment across various programs16.
PLUS Loans vs. Subsidized and Unsubsidized Loans
PLUS Loans differ significantly from other common federal student loan types, namely subsidized loans and unsubsidized loans, primarily in eligibility, loan limits, and interest accrual.
| Feature | PLUS Loans | Subsidized Loans | Unsubsidized Loans |
|---|---|---|---|
| Borrower Type | Graduate/professional students (Grad PLUS) or parents of undergraduates (Parent PLUS)15 | Undergraduate students with demonstrated financial need14 | Undergraduate and graduate/professional students13 |
| Financial Need | Not based on financial need12 | Required11 | Not required10 |
| Interest Accrual | Interest accrues from the date of first disbursement | Government pays interest while in school, during grace periods, and deferment | Interest accrues from the date of first disbursement |
| Loan Limits | Up to the cost of attendance minus other aid (no lifetime limit, though limits proposed for 2026)8, 9 | Annual and aggregate limits vary by academic level and dependency status7 | Annual and aggregate limits vary by academic level and dependency status6 |
| Credit Check | Required; adverse credit history can affect eligibility5 | Not required | Not required |
The primary distinction is that PLUS Loans can cover a much larger portion of educational costs, are not based on financial need, and require a credit check, making them a recourse for those who need to borrow beyond the limits of other federal student aid programs.
FAQs
Who is eligible for a PLUS Loan?
Graduate or professional students can apply for Grad PLUS Loans, and parents of dependent undergraduate students can apply for Parent PLUS Loans. Both must meet general federal student aid eligibility requirements, and the borrower must not have an adverse credit history, though options exist for those who do3, 4.
How much can I borrow with a PLUS Loan?
You can borrow up to the full cost of attendance at your school, minus any other financial aid you've received2. The cost of attendance is determined by your school and includes tuition, fees, room and board, books, and other educational expenses.
Do PLUS Loans require a credit check?
Yes, a credit check is conducted for all PLUS Loan applicants. If you have an adverse credit history, you may still be able to receive a PLUS Loan if you meet additional requirements, such as obtaining an endorser or documenting extenuating circumstances1.
What are the interest rates for PLUS Loans?
PLUS Loans have fixed interest rates. The specific rate is set annually by the U.S. Department of Education. Interest begins to accrue on the loan from the date of the first disbursement.
Can PLUS Loans be consolidated?
Yes, PLUS Loans can be consolidated through the federal student loan consolidation program, potentially simplifying repayment by combining multiple federal loans into a single direct consolidation loan.