Direct PLUS Loans are unsubsidized loans for the parents of dependent students and for graduate/professional students. PLUS loans help pay for education expenses up to the cost of attendance minus all other financial assistance. Interest is charged during all periods. However, unlike the Stafford loans, Direct PLUS loans have extra requirements.
There is a credit check that determines whether the parent has adverse credit. Some schools require the FAFSA Financial Aid Application to qualify. So, be sure to check whether or not this is a requirement with your school’s financial aid office first, although it’s usually just a generally good idea to file the FAFSA. In order to receive the loan, you must be the student's biological or adoptive parent or the student's stepparent, if the biological or adoptive parent has remarried at the time of application. Your child must be a dependent student who is enrolled at least half-time at a school that participates in the Direct Loan Program. For financial aid purposes, a student is considered "dependent" if he or she is under 24, unmarried, and has no legal dependents at the time the Free Application for Federal Student Aid is submitted. (Exceptions are made for veterans, wards of court, and other special circumstances.) If a student is considered dependent, then the income and the assets of the parent have to be reported on the FAFSA.
There are also extra fees and benefits available with the PLUS Loan. The interest rate on the PLUS Loan is fixed at 8.5% as of July 1, 2006, which is higher than the other Stafford loans, which means that private companies might be able to compete with it. However, the interest on the PLUS Loan may be tax deductable. You may also receive a 0.25% repayment interest rate credit when payments are set up for automatic debit from a bank account. Unfortunately, there is a 3% origination fee and a 1% federal default fee. This fee helps reduce the cost of making these low-interest loans. We deduct the fee before you receive any loan money, so the loan amount you actually receive will be less than the amount you have to repay.