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Why You Should File a Parent PLUS Loan Application — Even If You Won’t Qualify

Why You Should File a Parent PLUS Loan Application — Even If You Won’t Qualify

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If you have adverse credit, your application for a parent PLUS loan could be denied. However, it’s still worth applying, as there may be workarounds to get your loan approved.

And even if your attempts are unsuccessful, having your parent PLUS loan application rejected could actually help your child receive more money for college.

Let’s consider the following topics to find out if you can qualify for a parent PLUS loan — and what to do if you can’t:

How ‘adverse credit’ can kill a parent PLUS application

Not every parent will be able to qualify for a parent PLUS loan. Each parent PLUS loan application includes a credit check to review your borrowing history.

While your credit score isn’t a factor, other information on your credit report might be. Specifically, the parent PLUS loan application uses the credit check to screen for “adverse credit.”

Adverse credit includes a history with significant derogatory marks, which could show you’ve recently struggled to responsibly repay and manage your debt.

The Federal Student Aid Office of the U.S. Department of Education classifies adverse credit as a history that includes either (or both) of the following:

  • Debt worth $2,085 or more that, within the past two years, was sent to collections, written off, or delinquent for 90 days or more
  • Any of the following events within the past five years:
    • Default determination
    • Debt discharged through bankruptcy
    • Foreclosure
    • Repossession
    • Tax lien
    • Wage garnishment
    • Federal student loan or other aid debt written off

Your parent PLUS loan will be denied if you have adverse credit, as defined above. To get approved, on the other hand, you must have nonadverse credit — meaning it’s free of those major negative credit marks.

Fortunately, many parents can meet the credit requirements on a parent PLUS loan application. Even if you don’t have strong enough credit to get approved for a private student loan, you might still qualify for the less stringent PLUS Loan.

How to apply for a parent PLUS loan if you have adverse credit

If you do have adverse credit, don’t write off parent PLUS loans just yet.

According to Federal Student Aid, parents with adverse credit can still access these loans. They’ll just need to take additional steps on their parent PLUS loan application.

You have two options to try to get approved for a parent PLUS loan if you have adverse credit:

  • Obtain an endorser: Similar to a cosigner on a loan, an endorser is a person who agrees to repay the parent PLUS loan if you don’t. This endorser will be subject to a credit check and must meet the nonadverse credit requirement. The student you’re borrowing for isn’t eligible to act as your endorser.
  • Document extenuating circumstances: You can appeal the adverse credit classification if you can prove your adverse credit ruling is based on incorrect, incomplete or out-of-date information. You must fully document the extenuating circumstances related to the debt. A member of the Department of Education will review this documentation and determine approval or denial on a case-by-case basis.

In addition to meeting one of the above conditions, you’ll also need to complete a PLUS credit counseling course.

If you can satisfy these requirements, your parent PLUS application will be approved and you can get the loans you need to help your child pay for college.

Should you need to borrow parent PLUS loans in the future, be aware that “previous approval based on extenuating circumstances does not guarantee further approvals,” according to the parent PLUS loan forms.

How a denied parent PLUS application can still help your student

If you know you have adverse credit and can’t or don’t want to go through the appeals process, it’s still worth submitting a parent PLUS loan application.

While a parent PLUS denial can be a setback for your plans to pay for college, it also comes with a surprising upside. Specifically, the Federal Student Aid Office will extend a higher amount of student loans to students with a parent who was denied a parent PLUS loan.

Undergraduates face strict student loan limits. Dependent students can borrow Direct Subsidized Loans and Direct Unsubsidized Loans only up to the following limits:

  • $5,500 to $7,500 per year, with the higher limit granted to upperclassmen
  • $31,000 lifetime total

Once students hit these limits, they have to look to other financing sources to cover their college costs. But what about when parent PLUS loans aren’t an option because the parent can’t qualify? In these cases, a student’s loan limits go up:

  • $9,500 to $12,500 per year, with the higher limit granted to upperclassmen
  • $57,500 lifetime total

In fact, your family will pay lower interest rates and fees if your student can borrow more Direct Subsidized Loans and Direct Unsubsidized Loans than you would if you took out parent PLUS loans. These undergraduate loans currently have interest rates of just 2.75%, for example, compared to the 5.3% rate on parent PLUS loans.

Why it’s usually worth submitting a parent PLUS loan application

The parent PLUS loan application does include a credit check, but don’t let that prevent you from completing and submitting the forms. It’s possible you can secure these loans even if you don’t meet the nonadverse credit requirement.

And even if your parent PLUS loan denial isn’t successfully appealed, your student could gain greater access to affordable financing.

Rebecca Safier contributed to this report.

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