Parent PLUS Loans for Parents with Bad Credit

Q: Can my parent get a Parent PLUS Loan even with bad credit?

A: Yes, it is possible. But it depends how you define bad credit.

Eligibility for Parent PLUS loans is not based on household income and your parents do not need to demonstrate financial need in order to qualify, so parents at all income levels can apply.

Parents will need to pass a simple credit check as part of the Parent PLUS Loan application process.

But this is not an in-depth credit review like they would receive if they were applying for a home mortgage or even cosigning for a private student loan.

Keep In Mind: The Parent PLUS Loan credit check DOES NOT consider the FICO score or the debt-to-income ratio of the parent applicant.

The Parent PLUS Loan credit check ONLY looks for negative credit history such as loan defaults, loan write-offs, or bankruptcy.

As long as your parents do not have any of these negative credit events on their credit report, they will probably qualify for the Parent PLUS Loan.

If your parent does not pass the PLUS Loan credit check
Your parent might still be able to receive a Parent PLUS Loan if someone, such as a relative or friend who is able to pass the credit check, agrees to endorse the loan.

A Parent PLUS Loan endorser promises to repay the loan if your parent fails to do so. Your parent might also qualify for a loan without passing the credit check if they can demonstrate that extenuating circumstances exist.

So if your parent is denied for the Parent PLUS Loan, check with your school Financial Aid Office immediately and find out what all of your options are.

How much money can I get with a Parent PLUS Loan?
The yearly limit on a PLUS Loan is equal to your cost of attendance minus any other financial aid you receive. If your cost of attendance is $6,000, for example, and you receive $4,000 in other financial aid, your parents can borrow up to $2,000.

Who gets the Parent PLUS Loan money?
Your loan provider will send the loan funds directly to your school. Your school might require your parents to endorse a disbursement check and send it back to the school. In most cases, the loan will be disbursed in at least two installments, and no installment will be greater than half the loan amount. The funds will first be applied to your tuition, fees, room and board, and other school charges. If any loan funds remain, your parents will receive the amount as a check or in cash, unless they authorize the amount to be released to you or to be put into your school account. Any remaining loan funds must be used for your education expenses.

What is the Parent PLUS Loan interest rate?
For new PLUS Loans the interest rate is fixed for the life of the loan and the rate is determined on July 1 of every year.

What are the Parent PLUS Loan fees?
Your parents will pay a fee of up to 4 percent of the loan, deducted proportionately each time a loan disbursement is made. For a FFEL PLUS Loan, a portion of this fee goes to the federal government, and a portion goes to the guaranty agency (the organization that administers the PLUS Loan Program in your state) to help reduce the cost of the loans. For a Direct PLUS Loan, the entire fee goes to the government to help reduce the cost of the loans. Also, your parents may be charged collection costs and late fees if they do not make their loan payments when scheduled.

When do you repay a Parent PLUS Loan?
For PLUS loans made to parents that are first disbursed on or after July 1, 2008, the borrower has the option of beginning repayment on the PLUS loan either 60 days after the loan is fully disbursed or wait until six months after the dependent student on whose behalf the parent borrowed ceases to be enrolled on at least a half-time basis.

How do you repay a Parent PLUS Loan?
They will repay a FFEL PLUS Loan to a private lender or loan servicer. They will repay their Direct PLUS Loan to the U.S. Department of Education Direct Loan Servicing Center. To read more about repayment options under both programs, read the PLUS Loans section in Funding Education Beyond High School: The Guide to Federal Student Aid.

Can Parent PLUS Loan repayment be postponed?
Yes, under certain circumstances, your parents can receive a deferment on their loans.

If they temporarily cannot meet the repayment schedule, they can also receive forbearance on their loan, as long as it is not in default. During forbearance, their payments are postponed or reduced.

Generally, the conditions for eligibility and procedures for requesting a deferment or forbearance apply to both Stafford Loans and PLUS Loans. However, since all PLUS Loans are unsubsidized, your parents will be charged interest during periods of deferment or forbearance. If they do not pay the interest as it accrues, it will be capitalized (that is, added to the principal amount of the loan, and additional interest will be based on that higher amount).

Can a Parent PLUS Loan be discharged or canceled?
Yes, under certain conditions. A discharge (cancellation) releases your parents from all obligation to repay the loan.

Your Parent PLUS Loan cannot be canceled for these reasons: You did not complete your program of study at your school (unless you could not complete the program for a valid reason—because the school closed, for example), you did not like the school or the program of study, or you did not obtain employment after completing the program of study.

For more information about loan discharge or repayment: If your parents have a Direct PLUS Loan, they should contact the Direct Loan Servicing Center at 1-800-848-0979, or go to studentaid.ed.gov. If they have a FFEL PLUS Loan, they should contact the lender or agency holding the loan.

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