• Type:
  • Genre:
  • Duration:
  • Average Rating:

What to Do When a Parent Is Denied a PLUS Loan

There are several options when a student’s parents are denied a federal Parent PLUS loan.

By Meghan Lustig, ContributorMay 13, 2020, at 9:40 a.m.

Elevated view from a young couple checking their home finances at home.
The PLUS loan requires an application to verify that the borrower – the parent – has no adverse credit history. (Getty Image)

WITH COLLEGE TUITION rising each year, finding the funds to cover the cost can be a challenge for many families. Even with savings and financial aid like scholarships, grants and federal student loans, students and their parents are sometimes faced with a gap between college costs and available resources.

In these cases, colleges may offer parents a federal Parent PLUS loan. This is a loan made to the parent of a qualifying student. The terms and borrower benefits differ from the federal direct loan, which is offered to students and has a lower interest rate and more flexible repayment options.

Another difference between the PLUS loan and the direct loan is that the PLUS loan requires an application to verify that the borrower – the parent – has no adverse credit history. An applicant can be disqualified and denied a PLUS loan for credit problems like recent bankruptcies, large debts more than 90 days delinquent, a recent wage garnishment or a tax lien.[ 

Being denied a PLUS loan does not mean you are out of options. There are other steps that families can consider, but be sure to weigh the pros and cons of each to make the right decision for your situation. Here are four options that families can consider after a Parent PLUS loan denial:

  • Borrow additional unsubsidized loans.
  • File an appeal.
  • Consider alternatives to taking on additional debt.
  • Enlist an endorser or co-signer.

Borrow Additional Unsubsidized Loans

When the parent of a dependent undergraduate student is denied a PLUS loan, the borrowing limit is increased for that student. He or she will be able to borrow more unsubsidized student loans up to the limit that is set for independent students. The annual limit varies by year in school, but is between $4,000 and $5,000 more than the amount that can be borrowed by dependent students.[ 

Federal student loans are the best borrowing option because they have a lower interest rate and better repayment terms. However, be sure to pay attention to the overall amount of debt that a student is taking on and consider whether it will be manageable upon graduation.

File an Appeal

If there are extenuating circumstances that contributed to the Parent PLUS loan denial or your situation has changed, your parent can file an appeal and try to have your application reconsidered. For example, you may be able to appeal if your parent is on track to address an overdue debt and can show successful repayment.

Contact your school’s financial aid office to start the process and submit a form. Your parent may be asked for information from a bank, creditors or other sources to support the claim.

Consider Alternatives to Taking on Additional Debt

For parents, taking on debt to help a child attend college can have a big impact on short-term and long-term finances. Before seeking additional debt options, consider whether there are ways to reduce the overall cost of college.

For example, to save money, consider enrolling in a local community college or a public university with lower tuition for the first year or two and then transferring to the institution of your choice to finish your degree.

You can also ask about whether your school offers a tuition installment or tuition payment plan, which can split tuition into monthly or per-semester payments. While this is technically a form of credit and there may be associated fees, most plans are interest-free. If you can afford the monthly payments, this would save you a lot of money on interest you would pay on a loan.

Finally, if you haven’t already, speak to a high school guidance counselor about private scholarship options. Scholarships are free money that you don’t have to pay back – and there are likely far more available than you think. Even small dollar amounts can help pay for expenses like books.

Enlist an Endorser or Co-signer

Parents can try to enlist a co-signer, called an endorser, on the PLUS loan. The endorser agrees to take responsibility for the loan if the borrower fails to repay, and the loan will show up on the endorser’s credit report as his or her own debt. It can improve the chances of getting the loan because the endorser’s credit is considered as part of the application, but it’s also a significant financial arrangement with another individual that should not be entered into lightly.

Another option is to enlist a co-signer to help the student take out a private student loan. In this case, the debt would be the responsibility of the student and the co-signer, leaving the parent out of the loan. This might be a better option for a parent who is already struggling to manage a lot of debt. Be sure to compare interest rates and terms to determine the best option.

Consider borrowing from a nonprofit or state-based organization, because these lenders follow a set of strong consumer protections and offer loan options with fixed interest rates and low or no origination fees. You can find nonprofit loan options in your specific state at ForYouNotForProfit.org.

We would love to hear from you, have a story, tip or recipe you would like to share with our readers? Feel free to email it to throughlovewelearn@gmail.com.

Previous Post

Graduation Cap Creativity

Next Post

Water Pie – Recipe from the Great Depression

Leave a Reply

Your email address will not be published. Required fields are marked *

Scroll to top

Join 87,409+ readers
Subscribe Today

Subscribe Today

RECEIVE EXCLUSIVE ACCESS

$
4.99
/mo
  • Free Digital Magazine
  • Live Streaming Notifications
  • Receive Breaking News Alerts
  • Free e.Book Downloads
  • Receive Product Giveaways