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What can you do if you are denied a Parent PLUS loan?
This question is about financing your studies.
Parent PLUS loans can be a useful tool for families to finance college. These are loans that parents take out to pay for their child's college education. They are popular because direct student loans have very low borrowing limits ($5,500 for freshmen). The result is that many families must borrow additional funds to pay for college.
However, there are certain requirements to be approved for Parent PLUS loans. And if you are denied a Parent PLUS loan, there are certain steps you can take to appeal or explore other financial aid options.
Requirements for a Parent PLUS loan
Unlike a “regular” loan, there are no special credit or income requirements for a Parent PLUS loan. However, you cannot have an “adverse credit history,” which we’ll discuss below.
To qualify for a PLUS Parent Loan, you must meet these simple criteria:
- Be a U.S. citizen or eligible non-citizen
- You must be a parent of a student (PLUS loans for parents are not eligible for graduate students)
- Have an eligible child/student enrolled at least half-time
- Do not have a “negative credit history”
What is a negative credit history? The Department of Education defines a negative credit history as follows:
- You have one or more debts with a total balance exceeding $2,085 that are 90 or more days past due at the time of the credit report or that were collected or written off in the two years prior to the date of the credit report; or
- In the past five years, you have experienced a default, a discharge of debt through bankruptcy (Chapter 7, 11, or 12), a foreclosure, a repossession, a tax garnishment, a wage garnishment, or a forgiveness of federal student aid.
How to appeal a loan rejection
If you are denied a Parent Plus loan due to poor credit, you can appeal or amend your application to include a guarantor. You basically have two options:
Appeal
If you believe the refusal was in error, you can appeal the decision. This should only be possible if there was an error or if you believe the refusal was due to extenuating circumstances.
What are common mistakes or extenuating circumstances? Here is a list:
- The borrower was merely an authorized user of a defaulted account
- The defaulted account was falsely reported to the credit bureaus and is actually fully paid
- Divorce and debts belonged to the other ex-spouse
- Credit consolidation and old credit are incorrectly displayed in the credit report
- Wage garnishment lifted
- The bankruptcy was a Chapter 13 bankruptcy, not Chapter 7, 11 or 12
- Tax lien was incorrectly registered or cancelled
If you want to appeal the denial, first attend the PLUS Loan credit counseling session, which lasts 30 minutes, and then you can file an online appeal.
Get an endorser
Another approach is to simply have a guarantor for the Parent PLUS loan who does NOT have a negative credit history. This could be a spouse, grandparent, or anyone else who would be willing to pay the Parent PLUS loan.
This is an easier route, especially if you know that the rejection of the loan request is justified. The problem is that many people do not have a guarantor to fall back on – usually a spouse has the same credit problems.
If you want to add a guarantor, you must also complete the PLUS credit counseling process, after which you can add a guarantor online.
What happens next
After you have lodged an appeal, you can expect to receive a response from the Department of Education in around 4 weeks. This can be challenging if you have limited time to finance your studies.
If you believe the denial will stand, you can also contact your child's student financial aid office and tell them you were denied. In this case, your child's Direct Loan will be increased from the dependent student limit to the independent student loan limit. For a freshman, this means they can borrow $9,500 instead of $5,500. That's helpful, but it may not be enough.
If you still can't afford the tuition, there are a few options. Look at the tuition payment plan and see if paying monthly makes sense. Bear in mind that this can increase the cost as you may need to purchase tuition insurance.
You can also decide to delay enrollment for a year while you sort out your finances. This can also help if you already have a negative credit history for four years, so if you wait a little longer, that will change.
People also ask
What happens if I am denied a PLUS Parent Loan?
If you are denied a Parent PLUS loan, you can appeal the denial, find a guarantor to extend the loan, or you can simply ask the college to increase the student's undergraduate Direct Loan limit.
Is it difficult to get approved for a PLUS Parent Loan?
No, it is not difficult to get a Parent PLUS loan. However, you cannot have a negative credit history, which is different from a credit score.
What options do I have if I am not eligible for a PLUS parent loan?
If you don't qualify for a Parent PLUS loan, your child can borrow a larger amount directly. You can also look into other financing options or a tuition payment plan.
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