The parent PLUS loan is a type of federal loan offered through the direct PLUS loans program. Unlike graduate PLUS loans or other types of federal loans, the parent PLUS loan requires a student’s parents to take out the loan and begin payment, so the undergraduate student is not directly responsible for the money.
With more student loan applications available online, parents can apply for this loan in about 20 minutes.
Parent PLUS loans rely on the parent’s credit score and income. For many parents, the loan may be denied. When you apply for the loan online, you will know almost instantly if you have been turned down.
What should you do if your parent PLUS loan is denied? First, it is important to know that there are several reasons this problem may have occurred. There is an appeals process, and options to reapply for the loan if your child truly needs this money to attend school.
There are also other options to get money for college if your parent PLUS loan is denied.
Why Are Parent PLUS Loans Denied?
Parent PLUS Loans are based on the assumption that parents, rather than their soon-to-be-undergraduate children, will have more stable incomes, better credit scores, or less debt. However, this is not always the case. Parents are more likely to have car loans, mortgages, credit card debt, and their own student loans listed on their credit history, which can make it harder for them to qualify for a parent PLUS loan.
There are many reasons why you may be denied a parent PLUS loan. These include:
- A security freeze. With some credit reporting agencies and other major businesses suffering cyber attacks in recent years, many people have placed credit freezes on their reports, so they do not suffer harm from potential identity theft.
If you have a credit freeze on your credit report, you have to remove it before applying for a parent PLUS loan, so that he lending agency can access your credit information. Otherwise, your application will not be processed.
- Adverse credit history. If you have an adverse credit history, you will be denied a parent PLUS loan. You may have been denied loans before, or this could be your first encounter with credit history trouble.
Reasons you may have an adverse credit history include:
- You are delinquent for 90 days, or a debt has been placed in collections, with an outstanding combined balance of $2,085 or more.
- You have been “charged off” or “written off” for being unable to pay a debt, as defined by the lender, in the two years prior to the parent PLUS loan application.
- You have been subject to a discharge of debts in bankruptcy, wage garnishment, default determination, repossession, foreclosure, tax lien, or write-off on federal student loan aid debt.
These events on your credit report show lending agencies, including the Department of Education, that you may be unable to repay the debt.
Appealing the Parent PLUS Loan Denial
When your child applies for financial aid for college, they should focus on getting scholarships and grants first, using any money in savings for college, and applying for subsidized federal student loans. Then, unsubsidized federal loans can be beneficial.
After these options have been exhausted, you and your child can look at parent PLUS loans or private loans to make up any financial gaps. After considering other funding sources, these loans may be small.
If you need to apply for a parent PLUS loan for your child and you are denied due to adverse credit history, you have some options for recourse.
- Obtain a loan endorser who does not have an adverse credit history. This could be your child’s other parent, another family member, or close family friend. If your parent PLUS loan is then approved with an endorser, you need to obtain a new master promissory note (MPN) for each endorsed loan.
- Document, to the satisfaction of the U.S. Department of Education, the extenuating circumstances related to your credit history. This is an appeal process offered through the Department of Education. You’ll state that the reported adverse credit history is incorrect or that there are extenuating circumstances.
In both scenarios, you must also complete the Department of Education’s PLUS credit counseling within 30 days of the denial of your PLUS loan. It is not a lengthy, multi-session form of counseling and typically takes just 15 to 20 minutes to complete.
Parent PLUS Loans Should Be a Last Resort for Most Students
Despite being denied a parent PLUS loan, your financial circumstances may qualify your child for additional federal student loans. Because there is potential financial hardship affecting your family, your child could qualify for unsubsidized student loans if they are still your dependent and an undergraduate earning a bachelor’s degree.
Your student may qualify for:
- $4,000 for freshmen and sophomore students.
- $5,000 for junior and senior students.
Regardless of your credit history as a parent, it is also important to know that parent PLUS loans should be viewed as a last resort to help your child through college. Your college-bound student should focus on the financial options available directly to them, starting with options that are not loans, so they do not have to worry about paying them back or accruing interest.
Parent PLUS loans can help you fill in gaps, but they are not the best option for either you or your child. The average federal student loan has a grace period of six months, during which the recent graduate will not have to pay back the loan as they search for a job. Parent PLUS loans do not have this grace period because, as the parent, you are financially responsible. Financial advisors recommend that you turn the loan payments over to your child through consolidation or refinancing after graduation, but that will shift the responsibility to the student immediately.
Parent PLUS loans also do not qualify for the range of repayment plans offered through other types of federal student loans, so it will be harder to manage payments if you or your child fall into tough financial times. There are also strict consequences if you default on this loan. Even bankruptcy cannot dismiss this loan debt, so you will be subject to wage garnishment, tax refund offsets, and even social security offsets.
With parent PLUS loans, it is easier to borrow more than you need accidentally. The option will be listed as a “direct PLUS loan” rather than a “parent PLUS loan” on many loan applications created by schools. This wording may be deceptive, and you could accidentally agree to take out this loan along with others, and then struggle with repaying the harsher terms.
If you have questions about your finances, your child’s finances, or how to manage school costs, most colleges, universities, and professional schools offer financial counseling. Consult with experts before taking out any student or parent loans.