Parent Loan Eligibility
Eligibility for the PLUS loan depends on a modest credit check that determines whether the parent as an adverse credit history. An adverse credit history is defined as being 90 or more days late on any debt or having any Title IV debt (including a debt due to grant overpayment) within the past five years subjected to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off. The Ensuring Continued Access to Student Loans Act of 2008 extended the 90 days late threshold to 180 days for mortgage payments and medical bill payments during calendar years 2007 through 2009.
Parents must complete a Direct PLUS loan application and promissory note, contained in a single form that students get from the respective college financial aid office. For a FEEL PLUS loan, parents must complete and submit a PLUS Loan application, available at the respective college's financial aid office or state guaranty agency. After the school completes its portion of the application, it must be sent to a lender for evaluation.
If a dependent student's parents are denied a PLUS loan, or the college financial aid administrator determines that the parents are likely to be denied a PLUS loan, the student becomes eligible for increased unsubsidized Stafford Loan limits. Only one parent needs to apply for and be denied a PLUS loan. However, if one parent is denied a PLUS loan and the other is approved for a PLUS loan, the student is not eligible for increased Stafford Loan limits.
It is generally a good idea for parents who think they might be denied a PLUS loan or have other exceptional circumstances that prevent them from using the PLUS loan program to talk to the school before applying for a PLUS loan. If they happen to obtain a PLUS loan approval it makes it much more difficult for the school to grant the student the additional unsubsidized Stafford loan eligibility. The specific language at 34 CFR 682.201(a)(3) is:
For purposes of a dependent undergraduate student's eligibility for an additional unsubsidized Stafford loan amount, as described at 34 CFR 682.204(d), is a dependent undergraduate student for whom the financial aid administrator determines and documents in the school's file, after review of the family financial information provided by the student and consideration of the student's debt burden, that the student's parents likely will be precluded by exceptional circumstances (e.g., denial of a PLUS loan to a parent based on adverse credit, the student's parent receives only public assistance or disability benefits, is incarcerated, or his or her whereabouts are unknown) from borrowing under the PLUS Program and the student's family is otherwise unable to provide the student's expected family contribution. A parent's refusal to borrow a PLUS loan does not constitute an exceptional circumstance.
If the dependent student receives the additional unsubsidized Stafford loan eligibility and the parent subsequently receives a PLUS loan, the student will not receive any subsequent disbursements on the additional unsubsidized Stafford loan but may retain any amounts already disbursed. Subsequent Stafford loan disbursements revert to the lower unsubsidized Stafford loan limits without considering any excess amounts received under the higher unsubsidized Stafford loan limits. The annual cap on the PLUS loan must consider the total amount of Stafford loan disbursements under the cost-of-attendance minus aid received cap.