What To Do If You’re Denied A Parent PLUS Loan?

Parent PLUS Loans can be a useful tool for families to pay for college. These are loans that the parent takes out to pay for their child's college. They are popular because Direct undergraduate loans have very low loan limits ($5,500 for freshman). The result is that many families need to borrow additional funds to pay for college.

However, Parent PLUS loans have specific requirements to get approved. And if you're denied a parent PLUS loan, there are specific steps you can take to appeal, or look at other options for financial aid.

Requirements For A Parent PLUS Loan

Unlike a "normal" loan, there are no specific credit or income requirements for a Parent PLUS Loan. However, you must not have an "adverse credit history", which we will discus below.

To qualify for a parent PLUS loan, you must meet these simple criteria:

• Be a U.S. Citizen or eligible non-citizen
• Be the parent of an undergraduate student (parent PLUS loans are not allowed for graduate students)
• Have an eligible child/undergraduate student enrolled at least half-time
• Not have an "adverse credit history"

What is an adverse credit history? The Department of Education defines an adverse credit history as:

• You have one or more debts with a total combined outstanding balance greater than $2,085 that are 90 or more days delinquent as of the date of the credit report, or that have been placed in collection or charged off (written off) during the two years preceding the date of the credit report; or
• In the last five years you had a default, discharge of debt in bankruptcy (Chapter 7, 11, or 12), foreclosure, repossession, tax lien, wage garnishment, or write-off of federal student aid.

How To Appeal An Adverse Credit Denial

If you are denied a Parent Plus Loan due to adverse credit, you can appeal it or modify your application to have an endorser. You basically have two courses of action:

Appeal 

If you believe that the denial was in error, you can appeal the decision. This should only be an option if there was an error or if you believe the denial was the result of extenuating circumstances. 

What are common errors or extenuating circumstances? Here's a list:

• Borrower was simply an authorized user on a defaulted account
• Defaulted account was incorrectly reported to the credit bureaus and is actually paid in full
• Divorce and debt belonged to other ex-spouse
• Loan consolidation and old loan is showing incorrectly on credit report
• Wage garnishment has been released
• Bankruptcy was a Chapter 13 bankruptcy, not a Chapter 7, 11, or 12
• Tax lien was filed incorrectly or released

If you want to appeal your denial, you start by doing PLUS Loan Credit Counseling, which will take 30 minutes. Then you can file an Online Appeal.

Get An Endorser

Another approach is to simply have an Endorser on the Parent PLUS Loan that does NOT have an adverse credit history. This could be a spouse, grandparent, or other person who would be willing to pay for the Parent PLUS Loan. 

This is an easier path forward, especially if you know the adverse credit denial is correct. The problem is that many people won't have an endorser they can use - typically a spouse will have the same credit problems. 

If you want to add an Endorser, you also have to do the PLUS Loan Credit Counseling. Then you can add an Endorser online.

What Happens Next

After you file an appeal, you can expect to hear back from the Department of Education in 4 weeks or so. That can be a challenge if you're on a short timeline to pay for college. 

If you think the denial will remain, you can also contact your child's college financial aid office and tell them you were denied. In this scenario, they will increase your child's Direct Loan from the dependent student limit to the independent student borrowing limit. For a freshman, this will mean they can borrow $9,500 instead of $5,500. That is helpful, but may not be enough.

If you still cannot pay, there are a few options. Look at the college tuition payment plan and see if paying monthly makes sense. Realize that this may increase the cost as you may be required to purchase tuition insurance.

You may also decide to defer enrollment for a year while you get your finances settled. This can also be helpful if you're at the 4th year of having an adverse credit history, so waiting a little longer will clear that up.

People Also Ask

What happens if I'm denied a parent PLUS loan?

If you're denied a Parent PLUS Loan, you can appeal the denial, you can find an Endorser to add to the loan, or you can simply request the college increase the student's undergraduate Direct Loan limit.

Is it hard to get approved for a parent PLUS loan?

No, it's not hard to get approved for a Parent PLUS Loan. However, you cannot have an adverse credit history, which is different than a credit score.

What options do I have if I do not qualify for a parent PLUS loan?

If you don't qualify for a Parent PLUS Loan, your child can borrow a higher amount directly. You can also look at other funding options, or a tuition payment plan.

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