What to do when a parent is denied a PLUS loan – Forbes Advisor
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A PLUS parent loan is a type of federal student loan available to parents who want to help their child pay for college. With a PLUS loan, you can borrow up to your child’s tuition.
However, unlike other types of federal loans, PLUS loans require a credit check, which means you may not qualify if you have less than stellar credit.
If your Parent PLUS loan application has been denied, here are some steps to follow and alternatives to consider.
Why was my Parent Plus Loan application declined?
Although the eligibility criteria to qualify for a parent PLUS loan are generally less strict than those followed by private lenders, it is still possible to have your application refused in the following situations:
You have an unfavorable credit history
To qualify for a PLUS parent loan, you must not have an adverse credit history. This does not mean that you must meet a minimum credit score requirement. Instead, you cannot include negative details on your credit report for the past two to five years, depending on the type of information.
Your credit history will be considered unfavorable by the Department of Education if your credit file contains:
- Accounts with balances of $2,085 or more that are 90 days or more past due, have been placed in collection or charged off within the previous two years
- Debts outstanding in the last five years
- Bankruptcy discharge listed within the last five years
- Repossession or foreclosure within the past five years
- Discharged or disbarred from federal student aid within the past five years
- Garnishment of wages or tax privileges in the last five years
Having even one of these items listed on your credit report will result in your PLUS loan application being denied.
You have a credit freeze in place
Freezing your credit can be a useful option if you are concerned about identity theft or other fraudulent activity. However, freezing your credit restricts access to your credit report, which means you will not be able to open new credit accounts or take out new loans, including parent PLUS loans.
If there is a freeze on your credit reports and you apply for a PLUS loan, your application will not be processed until you lift the freeze.
What to do if your Parent Plus loan application is denied
If your PLUS loan application was denied, here are some options to consider:
If your parent PLUS loan application is denied due to an adverse credit history, you may qualify for a loan by adding an endorser to your application. Similar to a co-signer, an endorser is someone with good credit who shares responsibility for the loan.
Keep in mind that if you, as the primary borrower, fail to make your payments, the endorser will be liable. Also note that if you plan to add an endorser, you will need to follow PLUS credit counseling.
Ask the other parent to apply
If you are applying for a Parent PLUS Loan and your application is denied, consider asking the child’s other parent to apply. The other applicant must be the student’s biological or adoptive parent (or step-parent if married to the custodial parent). So, if you are divorced or separated, your ex-partner may still be able to take out a PLUS loan.
Keep in mind that both parents can apply for a PLUS parent loan if they are divorced and as long as the total assistance does not exceed the student’s tuition. Also note that the following people are not eligible for a PLUS loan unless they have adopted the student:
- Grand parents
- Legal guardians
- older siblings
- Uncles or aunts
- Widowed in-laws
In some cases, you can appeal a PLUS loan denial if you provide documentation that shows extenuating circumstances related to your adverse credit history. Keep in mind that this does not apply to job loss or illness – extenuating circumstances must be specifically related to your credit.
For example, you may be able to claim extenuating circumstances in the following situations:
- Your credit report shows a repossession, but you have a final divorce decree stating that you are not responsible for the debt.
- Your wages have been garnished, but you have a document on official letterhead indicating that the garnishment has been canceled or paid in full.
- Foreclosure proceedings have begun, but you have a finalized, signed, and notarized loan modification agreement and proof of payment in accordance with that agreement.
If you have extenuating circumstances and decide to appeal a PLUS loan denial, you can begin the process online at StudentAid.gov.
Remove credit freeze
If you have a credit freeze on your credit reports, you can easily have it removed to allow your PLUS loan application to be processed. To do this, simply visit each of the three online credit bureaus to manage the freeze:
3 Parent Plus Loan Alternatives
If you still can’t get a Parent PLUS loan, here are some alternatives that could help your child pay for their education:
1. Look at other federal student loans
In addition to parent PLUS loans, your student may consider direct subsidized or unsubsidized loans. Here’s how they work:
- Subsidized direct loans are available for dependent undergraduate students with financial need. The government covers all accrued interest on subsidized loans while the student is in school and during grace periods.
- Direct unsubsidized loans are available to undergraduate and graduate students regardless of financial need. Unlike subsidized loans, the student is responsible for all accrued interest on unsubsidized loans. If you are denied Parent PLUS loans, your child may also be able to borrow a higher than normal amount of unsubsidized loans. Contact their school’s financial aid office for more information.
2. Apply for scholarships and grants
Unlike student loans, scholarships and grants don’t have to be repaid, making them a great way to pay for education. There’s no limit to the number of these rewards your child can get, so it’s a good idea for them to ask for as many as possible. Organizations that typically offer scholarships and grants include:
- Local and national businesses
- Non-profit organizations
- Professional associations in your child’s field of study
Your child may also be eligible for school grants based on the information they provide when completing the Free Application for Federal Student Aid (FAFSA).
3. Consider private student loans
After exhausting options for federal student loans, grants, and scholarships, private student loans could help your child fill in any remaining funding gaps. However, you will generally need good to excellent credit to qualify for a private student loan. Therefore, if you have an adverse credit history, you will likely find it difficult to get approved for a private parent student loan.
If your child is unable to qualify on their own, they may consider applying with a creditworthy co-signer. Keep in mind that a co-signer can be anyone with good credit who is willing to share responsibility for the loan, such as another parent or trusted adult.