Part Two: If parents are denied a Parent PLUS loan, what are their options?
Last week, we outlined the basics of the Federal Parent PLUS loan, a great option for many families, but an option that might not be available to all. If you’ve been denied a PLUS loan, you first have the right to appeal the decision by documenting extenuating circumstances (Tweet this Tip). For more information, see https://studentloans.gov/myDirectLoan/whatYouNeed.action?page=credit.
The student’s other parent or stepparent also can apply for the Parent PLUS Loan which will trigger another credit check for the new borrower to determine his or her eligibility. Finally, the original borrower also has the option to utilize an endorser to cosign the loan. The endorser must pass the credit check, and he or she will be responsible for repaying the loan if the borrower fails to make payments. For more information, see https://studentloans.gov/myDirectLoan/whatYouNeed.action?page=endorser. Currently, a cosigner release is not available on federal loans, and the student cannot serve as the cosigner on a Parent PLUS loan.
If a parent is ultimately unable to secure a PLUS loan, the student becomes eligible for an increased amount of Unsubsidized Federal Direct Student Loan. The additional monies the student can borrow are likely less than the amount that was originally requested, but can assist with meeting education costs. Freshmen and sophomores are eligible for an increase of up to $4,000, and juniors and seniors can get an increase of up to $5,000. Note: this increase is not available to families who are approved to borrow the PLUS Loan or who re-apply and are approved with an endorser.
While a PLUS loan denial can be disappointing, it doesn’t have to derail a family’s college plans. A parent who knows his options can successfully overcome a PLUS denial and institute a modified, but no less effective, college payment strategy to bring that coveted degree within reach.