Everything You Need to Know About the Federal Direct PLUS Loan for 2025

Student Finance & Loan Expert

Navigating the complexities of funding higher education can be daunting for parents and graduate students. The Federal Direct PLUS Loan program aims to alleviate this financial burden. It provides accessible loans to cover education costs not met by other financial aid. In this article, our experts delve into the specifics of the PLUS Loan, offering a comprehensive guide to eligibility, application processes, and repayment options. At Research.com, we ensure you have the essential information to make informed decisions about financing education.

Key Things You Should Know About the Federal Direct PLUS Loan for 2025

Federal Direct PLUS Loans are available to parents of dependent students and to graduate or professional students.
PLUS Loans allow you to borrow up to the full cost of attendance minus any other financial aid received.
Federal Direct PLUS Loan borrowers have access to flexible repayment plans. These include standard, graduated, and extended repayment options.

What is a Federal Direct PLUS Loan?
Types of Federal Direct PLUS Loans
Pros and Cons of Federal Direct PLUS Loans
What are the interest rates on Federal Direct PLUS Loans?
What are the loan fees associated with Federal Direct PLUS Loans?
Are there loan limits on Federal Direct PLUS Loans?
How to Apply for Federal Direct PLUS Loans
What is the difference between a direct unsubsidized loan and a direct PLUS loan?
How to Compare Private and Federal Loan Options Effectively
Can Federal Direct PLUS Loans be used to cover housing costs?
How do Federal Direct PLUS Loans affect my credit score and long-term financial planning?
Could an online degree reduce your reliance on Federal Direct PLUS Loans?
What are some alternatives to the Federal Direct PLUS Loan?
How to address borrowing limitations with Federal Direct PLUS Loans?
What is student loan forgiveness?
Should you consider refinancing or consolidating your Federal Direct PLUS Loans?
Can choosing the right college major reduce future loan dependency?
Could alternative education pathways lower reliance on Federal Direct PLUS Loans?
How does the loan approval timeline influence your financial strategy?
How do current economic trends influence your loan strategy?
Are Federal Direct PLUS Loan Interest Payments Tax-Deductible?
Other Things You Should Know About the Federal Direct PLUS Loan

What is a Federal Direct PLUS Loan?

Graduate and professional students, as well as parents of dependent undergraduates, can use Direct PLUS Loans to help pay for college or career school. These federal loans cover education expenses that other financial aid does not.

The U.S. Department of Education offers Federal Direct PLUS Loans to eligible parents and graduate or professional students through schools that participate in the Direct Loan Program.

Federal Direct PLUS Loans have a fixed interest rate and are not subsidized, meaning interest accrues while the student is enrolled in school. To qualify, you must pass a credit check. An origination fee is also charged and deducted from the loan disbursement before you or your school receives the funds.

If you are pursuing a Master of Business Administration (MBA), and wondering how to get an MBA paid for, then a Federal Direct PLUS Loan might be an excellent financing option.

Types of Federal Direct PLUS Loans

There are two main types of Federal Direct PLUS Loans:

Federal Direct Parent PLUS Loan

Parent PLUS loans let parents of dependent undergraduate students borrow money to cover costs not covered by the student’s financial aid, up to the full cost of attendance. There is no cumulative borrowing limit for these loans. The borrowing parent is financially responsible for the Parent PLUS loans, and they cannot transfer the responsibility to the student after graduation.

Eligibility for Federal Parent PLUS Loan

Pass a credit check. If you cannot pass, you can still qualify by obtaining an endorser (someone who agrees to repay the loan if you do not) or by explaining extenuating circumstances related to your adverse credit history to the Department of Education.
Meet the general eligibility requirements for federal student aid.
Be the biological, adoptive, or in some cases, the stepparent of a student enrolled at least half-time at an eligible school. Grandparents and legal guardians are not eligible to borrow Parent PLUS loans unless they have legally adopted the student.

Federal Direct Grad PLUS Loan

Grad PLUS loans allow graduate and professional students to borrow money for their education. Students can use these loans to cover costs not covered by other financial aid or grants, up to the full cost of attendance. There is no cumulative borrowing limit for Grad PLUS loans.

Eligibility for Federal Grad PLUS Loan

Pass a credit check.
Meet financial aid eligibility requirements.
Be enrolled at least half-time in a graduate or professional program at an eligible school.

Pros and Cons of Federal Direct PLUS Loans

Federal Direct PLUS Loans are a popular option for parents and graduate students looking to finance their college education. However, as with any financial decision, you must weigh the potential benefits and drawbacks of this loan program. The key pros and cons of Federal Direct PLUS Loans are:

Pros

No borrowing limit: You can borrow up to the full cost of attendance for the academic year, minus any other financial aid.
Fixed interest rate: The interest rate remains the same for the life of the loan, aiding in predictable repayment planning.
Deferment option: Parents can request a deferment while the student is in school, providing more repayment flexibility.
Flexible repayment plans: Eligible for standard repayment, graduated repayment, and extended repayment plans.
Public Service Loan Forgiveness: A Parent PLUS Loan consolidated into a Direct Consolidation Loan may qualify for Income-Contingent Repayment or Public Service Loan Forgiveness.

Cons

Higher interest rates: Direct PLUS Loans have higher interest rates compared to other federal student loans.
Origination fee: Borrowers pay an origination fee, potentially making the loan more expensive than private loans.
Credit check required: Borrowers must undergo a credit check, and adverse credit history might limit eligibility.
Risk of over-borrowing: Without strict limits (cost of attendance minus other financial aid), borrowers risk borrowing too much and going into default.
Immediate repayment: Unless you request a deferment, you must start repaying parent loans right away.
Limited repayment options: The parent PLUS loan has fewer income-based repayment options available.

What are the interest rates on Federal Direct PLUS Loans?

The interest rate for Direct PLUS Loans is 0% during the payment pause. New fixed interest rates are determined every year and apply to loans first disbursed from July 1 of the current year through June 30 of the following year.

If you received your Direct PLUS Loan between July 1, 2023, and June 30, 2024, it will have a fixed interest rate of 8.05% after the payment pause ends. However, your loan will likely have a different interest rate if it was disbursed before July 1, 2023.

Everything You Need to Know About the Federal Direct PLUS Loan 1.png

What are the loan fees associated with Federal Direct PLUS Loans?

All Federal Direct PLUS Loans have a loan fee, which is a percentage of the loan amount. This fee is proportionately deducted from each loan disbursement. For loans first disbursed on or after October 1, 2020, the fee is 4.228%. Loans disbursed before that date had different fees.

The table below shows the most recent loan fees:

Loan Fees

Dates

4.228%

October 1, 2020 – September 30, 2025

4.236%

October 1, 2019 – September 30, 2020

4.248%

October 1, 2018 – September 30, 2019

Are there loan limits on Federal Direct PLUS Loans?

There is no fixed limit on the amount that can be borrowed through a Federal Direct PLUS Loan. For parents, the maximum amount they can borrow with a PLUS loan is the cost of attendance at their child’s school, minus any other financial assistance their child receives. The school determines the cost of attendance.

For instance, a child’s cost of attendance is $6,000 and they receive $4,000 in other financial aid. The parents can borrow up to $2,000 in PLUS loans.

How to Apply for Federal Direct PLUS Loans

Federal Direct PLUS Loans can help parents and students alike cover education costs when other financial aid options have been exhausted. The application process involves several steps, which we will explore in detail in the following sections.

Direct PLUS Loan Application for Parents

If you are a parent of a student, here is how you can apply for the PLUS loan:

Request a Direct PLUS Loan.
Change the amount of a previously requested Direct PLUS Loan.
Authorize the school to use your Direct PLUS Loan funds for educational expenses.
Designate who receives any credit balance from the school.
Request deferment of repayment while the student is in school and for up to six months after graduation.

Direct PLUS Loan Application for Professional Students

If you are a graduate or professional student, here is what you should do:

Complete the Free Application for Federal Student Aid (FAFSA) form.
Determine the loan amount you need based on your school’s cost of attendance minus any other financial aid received.
Apply for the Direct PLUS Loan for graduate or professional students online. This will initiate a credit check by the Department of Education.
If approved, complete a Master Promissory Note (MPN) and Entrance Counseling, which are required once for first-time PLUS Loan borrowers. The approved loan amount will be added to your financial aid package and disbursed directly to your school to cover tuition and other eligible expenses.

What is the difference between a direct unsubsidized loan and a direct PLUS loan?

Direct Unsubsidized Loans are available to both undergraduate and graduate students. You do not need to demonstrate financial need to qualify. The borrower is responsible for always paying the loan's interest. Meanwhile, Federal Direct PLUS Loans are available to eligible parents (Parent PLUS Loans) and to graduate or professional students (Grad PLUS Loans).

Direct Unsubsidized Loans have a lower interest rate compared to Direct PLUS Loans. For the 2023-24 school year, the interest rate on Direct Unsubsidized Loans for graduate students is 7.05%, while Direct PLUS Loans have a higher rate of 8.05%. For repayment options, both loan types offer flexible plans. However, Federal Direct PLUS Loans are also eligible for public service loan forgiveness and income-driven repayments.

Everything You Need to Know About the Federal Direct PLUS Loan 2.png

How to Compare Private and Federal Loan Options Effectively

When considering financial aid solutions, it's essential to weigh the benefits and drawbacks of federal loans like the Federal Direct PLUS Loan against private loan options. Federal loans often provide fixed interest rates, income-driven repayment plans, and forgiveness opportunities, making them a preferred choice for many families. However, private loans might be more advantageous depending on individual financial circumstances.

Private loans may offer lower interest rates for borrowers with strong credit or those who apply with a creditworthy co-signer. Additionally, private lending institutions often provide flexible borrowing limits, which can cover costs that exceed federal loan caps or limitations. For example, if you have exhausted federal loan options, you might explore the availability of best college loans to secure more competitive terms and additional funding.

Despite these appeal factors, it’s critical to assess the full scope of repayment terms, fees, and borrower protections before deciding. Federal loans typically surpass private options in offering deferment, forbearance, and forgiveness programs, which are crucial for borrowers expecting future financial uncertainties. A thorough comparison can help make the best decision for minimizing debt while ensuring access to necessary funding.

Can Federal Direct PLUS Loans be used to cover housing costs?

Federal Direct PLUS Loans are primarily designed to supplement other forms of financial aid by covering the cost of attendance, which can include room, board, and ancillary expenses as defined by the educational institution. However, the specific allocation for housing costs such as rent is determined by the school's cost breakdown and may not fully align with actual living expenses. Borrowers should confirm with their financial aid office to ensure that the disbursed amounts meet their housing needs without inadvertently increasing overall debt. For further insight, please see does student loans pay for housing.

How do Federal Direct PLUS Loans affect my credit score and long-term financial planning?

Federal Direct PLUS Loans require an initial credit review, and their repayment behavior can play a significant role in shaping your credit profile. Consistent, on-time repayments may contribute positively to your long-term creditworthiness, while any delays or defaults could adversely impact your financial stability. Evaluating the loan’s structure alongside your personal budget allows for proactive financial planning to minimize potential risks. Additionally, being aware of these considerations can help you compare federal loan options with other funding alternatives, such as exploring institutions like a college online with no application fee, ensuring a well-rounded approach to managing your educational investments.

Could an online degree reduce your reliance on Federal Direct PLUS Loans?

Evaluating online education options can offer a cost-effective alternative to traditional campus programs. Data suggests that online degree programs may involve lower tuition and reduced ancillary costs, which in turn can lessen the need for additional borrowing. Applicants are encouraged to review comparative analyses and financial breakdowns to determine if switching to digital learning aligns with their budgetary goals. For further insight, examine our post Is online degree cheaper? to influence your overall education financing strategy.

What are some alternatives to the Federal Direct PLUS Loan?

Here are a few alternatives to the Federal Direct PLUS Loan:

Direct Subsidized and Unsubsidized Loan

Direct subsidized loans are for eligible undergraduate students with demonstrated financial needs. The annual award is up to $5,500 depending on dependency status and grade level. Meanwhile, direct unsubsidized loans are for eligible undergraduate and graduate students. The annual award is up to $20,500, minus any subsidized amount received for the same period depending on grade level.

Private Students Loans

Private parent loans or undergraduate loans can also be used to pay for college. Although they lack the benefits of federal loans, private loans may offer lower interest rates and fees than PLUS Loans. Students can apply for private loans independently but may need a co-signer.

College is expensive in the U.S. If you are curious about how much has college tuition increased, our experts can provide detailed insights and historical data.

Grants and Scholarships

Grants are usually based on financial need and do not need to be repaid. Scholarships are typically merit-based and also do not require repayment. Students should fill out the FAFSA to determine their eligibility for grants and search for scholarships on dedicated websites. If you are curious, "Does the FAFSA form save automatically?" our experts can clarify this process for you.

School-Based Aid

Some colleges and universities offer their financial aid programs, such as institutional loans or tuition payment plans, which can serve as alternatives to PLUS Loans. Many schools offer fully-funded scholarships. If you are wondering, “What does a full tuition scholarship cover?” our experts can provide you with a detailed explanation.

Work-Study Programs

Students can work part-time jobs related to their major and use their wages to pay for college expenses. You can use your wages earned from work-study jobs to help cover the cost of tuition, fees, college room and board, and other educational expenses.

Personal Loans

These loans typically require collateral, have higher interest rates than PLUS Loans, and offer limited options for postponing payments if necessary.

Education Savings Plan (529)

529 plans are tax-advantaged investment accounts designed to help save for future education expenses. States or state agencies sponsor 529 plans, offering flexibility to use the funds at eligible schools nationwide.

If you are curious about how much to contribute to 529, the 529 plan limits vary by state. Each state sets its maximum contribution limit per beneficiary, usually between $235,000 and $550,000. These limits vary due to different education costs and investment opportunities nationwide. Knowing these differences helps you make better decisions about maximizing your savings. Below is the table highlighting the states with the highest aggregate limits.

State

Aggregate Limit

Wisconsin

$545,500

Utah

$560,000

New Hampshire

$569,123

Arizona (advisor-sold plan only)

$575,000

Alaska, Connecticut, Missouri, North Carolina, Vermont, Virginia, West Virginia

$550,000

How to address borrowing limitations with Federal Direct PLUS Loans?

Often, borrowers face financial shortfalls even after securing a Federal Direct PLUS Loan, as these loans only bridge the gap up to the total cost of attendance minus other aid. In such cases, understanding how to manage these limitations is crucial.

One alternative solution combines multiple funding sources such as grants, scholarships, and work-study programs. These options can help reduce loan dependency and lower the overall debt burden. Another effective strategy is exploring emergency funding options tailored to students and parents needing immediate financial assistance. If you're unsure where to begin, learning about options for a last minute student loan could provide you with critical insights to act quickly.

Furthermore, families could leverage savings plans like 529 accounts or consider private loans as supplements. However, it's essential to compare the interest rates, repayment terms, and associated fees of private loans with federal offerings to avoid excessive debt.

Proactive financial planning and early applications for additional financial aid opportunities are vital steps to address borrowing limitations and ensure students have the necessary resources to pursue their educational aspirations.

What is student loan forgiveness?

You can have your federal student loans forgiven, canceled, or discharged in certain situations. Meaning, you do not have to repay some or all of your loans. The terms "forgiveness," "cancellation," and "discharge" essentially mean the same thing.

Types of Loan Forgiveness

Below are the main types of student loan forgiveness programs:

Income-Driven Repayment (IDR) Forgiveness

Your remaining loan balance is forgiven after 20-25 years of payment under an IDR plan. Borrowers repaying for over 20 years may immediately qualify for forgiveness.

Public Service Loan Forgiveness (PSLF)

The remaining loan balance is forgiven after 120 qualifying payments (10 years) while working full-time for a government or non-profit organization.

Teacher Loan Forgiveness

Up to $17,500 in federal student loans can be forgiven for teachers who teach full-time for five consecutive years in low-income schools.

Total and Permanent Disability Discharge

This applies to borrowers who have a disability that severely limits their ability to work.

How to Apply for Forgiveness

You have two main options to apply for forgiveness on Federal Direct PLUS Loans:

1. Income-Contingent Repayment (ICR) Plan

You can consolidate your PLUS Loans into a Direct Consolidation Loan and then enroll in the ICR plan. You can make 25 years’ worth of payments under ICR. Any remaining balance will be forgiven after 25 years.

2. PSLF

Make sure to consolidate your PLUS Loans into a Direct Consolidation Loan. Work full-time for a qualifying public service or non-profit organization then enroll in the ICR plan. While working in public service, you must make 120 qualifying monthly payments. If you have any remaining loan balance, it will be forgiven after ten years of payments and public service.

Here is what students and parents have to say about their federal direct PLUS loan

"The Federal Direct PLUS Loan made it possible for me to attend my dream college without financial stress. The application process was straightforward, and now I can focus on my studies and future career. Thanks to this loan, my dreams are within reach!" - Kaila

"As a parent, securing a Federal Direct PLUS Loan for my son's education was a game-changer. It offered us the financial flexibility we needed, and the fixed interest rates were a huge relief. Knowing that his future is secure makes every effort worthwhile." - Lisa

"The Federal Direct PLUS Loan provided the support I needed to cover tuition and living expenses. The repayment options are manageable, and the peace of mind it offers is priceless. it is truly a lifeline for students aiming high." - David

Should you consider refinancing or consolidating your Federal Direct PLUS Loans?

Evaluating the feasibility of refinancing or consolidating your Federal Direct PLUS Loans requires a careful review of current interest rates, repayment terms, and the potential trade-offs between federal benefits and private lending options. Refinancing through private institutions may offer lower interest rates but typically results in the loss of federal protections such as income-driven repayment plans and loan forgiveness opportunities. Consolidation within the federal system can streamline multiple PLUS loans into a single Direct Consolidation Loan, providing more manageable repayment structures without sacrificing access to federal relief programs. Borrowers are encouraged to perform a comprehensive cost-benefit analysis and seek professional financial advice before taking action. Additionally, exploring alternative funding strategies, including online college courses that accept FAFSA, can further mitigate the overall debt burden.

Can choosing the right college major reduce future loan dependency?

To optimize long-term financial health, it is essential to align academic pursuits with fields that offer a strong return on investment. Carefully evaluating programs through resources such as college majors can guide both students and parents in selecting career paths that may provide higher earning potential. This proactive approach could lessen future dependency on Federal Direct PLUS Loans by facilitating a more robust, self-sustaining financial plan post-graduation.

Could alternative education pathways lower reliance on Federal Direct PLUS Loans?

Exploring alternative education models such as community colleges, accelerated certification programs, and vocational training can significantly reduce the financial burden typical of traditional four-year institutions. These options often offer focused curricula, lower tuition fees, and faster entry into the workforce, which may substantially lower the need to rely on high-cost lending. In addition, evaluating accredited online initiatives can provide cost-effective solutions that align education expenses with projected earnings. Prospective students are encouraged to investigate options like our curated list of online trade school programs to minimize debt exposure while securing industry-relevant skills.

How does the loan approval timeline influence your financial strategy?

Understanding the timeline involved in processing a Federal Direct PLUS Loan is critical for effective financial planning. Applicants must account for administrative processing, credit evaluation, and school-specific disbursement schedules when setting their education funding strategy. Delays in loan approval or fund allocation can affect timely tuition payments and budgeting for ancillary expenses. For a detailed perspective on processing times and how they integrate with your broader financial planning, review How long does it take to get federal student loan?. This insight ensures that you proactively manage any timing discrepancies, reducing the risk of financial setbacks during the enrollment period.

How do current economic trends influence your loan strategy?

Economic fluctuations—such as inflation, employment shifts, and interest rate adjustments—directly impact the sustainability of your loan strategy. Analyzing these trends is essential for borrowers to integrate adaptive repayment plans and reassess borrowing needs in real time. Moreover, aligning your education with careers that traditionally weather economic uncertainties can reduce long-term dependency on loans. For example, evaluating sectors highlighted by the top paying college majors may offer better financial resilience as market conditions evolve.

Are Federal Direct PLUS Loan Interest Payments Tax-Deductible?

Federal Direct PLUS Loan interest may qualify for a tax deduction under current IRS guidelines. Eligible borrowers can potentially deduct up to $2,500 in student loan interest annually, subject to income limits and filing status. It is important to note that qualification criteria and allowable amounts are subject to change, and borrowers should review the latest IRS Publication 970 or consult a tax professional before claiming this deduction. For an informed comparison of funding options and related financial benefits, consider reviewing information available from college loan providers.

Key Findings

The interest rate for Direct PLUS Loans issued between July 1, 2023, and June 30, 2024, is 8.05%.
Loan origination fees are currently 4.228%, deducted from each loan disbursement.
For the 2023-24 school year, the interest rate for Direct Unsubsidized Loans for graduate students is 7.05%.
Direct Unsubsidized Loans have an annual award limit of up to $20,500, minus any subsidized amount received for the same period, depending on grade level.
Teachers who work full-time for five consecutive years in low-income schools can have up to $17,500 of their federal student loans forgiven.
Borrowers working in public service can have their remaining loan balance forgiven after 120 qualifying payments (10 years).
Wisconsin is the state with the highest aggregate limit of $545,500.

Everything You Need to Know About the Federal Direct PLUS Loan 3.png

Other Things You Should Know About the Federal Direct PLUS Loan

What is an adverse credit history?

An adverse credit history is a record of poor repayment history on one or more loans or credit cards. It can disqualify a borrower from receiving a Federal Direct PLUS Loan.

Which is better unsubsidized or graduate PLUS?

Unsubsidized federal student loans are generally a better option than graduate PLUS loans. They offer lower interest rates, fewer fees, and more favorable repayment terms. However, if you need to cover the full cost of attendance and require a higher borrowing limit, graduate PLUS loans may be necessary.

Do grad PLUS loans qualify for forgiveness?

Federal Direct PLUS Loans for graduate or professional students can be forgiven, canceled, or discharged partially or entirely under specific conditions. These include permanent disability and death discharge.

References: