4 min
Parent PLUS Loan Denial? Here’s What to Do Next
Being denied a federal parent PLUS loan can be discouraging, but it doesn’t necessarily mean you have no options left. Parents may still have ways to help finance their child's education, such as appealing the decision, adding an endorser, or exploring private loan alternatives.
Summary
Being denied a federal parent PLUS loan can be discouraging, but it doesn’t necessarily mean you have no options left. Parents may still have ways to help finance their child's education, such as appealing the decision, adding an endorser, or exploring private loan alternatives.
😕 Reasons Parents Are Denied PLUS Loans
One of the primary reasons parents are denied a PLUS loan is having an adverse credit history. This can include issues like a tax lien or a debt payment that is more than 90 days overdue. Other eligibility factors, such as the student’s enrollment status and citizenship requirements, can also impact approval. Understanding these criteria can help parents take the necessary steps to address potential disqualifications.
Takeaways:
• Adverse credit history, including overdue payments, tax liens, and foreclosures, can lead to denial.
• Parent PLUS loans also have eligibility requirements related to citizenship and student status.
Key Terms
• Adverse Credit History: A record of significant negative credit events, such as missed payments, foreclosures, or tax liens.
• Parent PLUS Loan: A federal loan for parents to help finance their dependent child's undergraduate education.
📝 Appealing a Parent PLUS Loan Denial
If a parent PLUS loan is denied due to extenuating circumstances or incorrect credit report information, there is an option to appeal. This involves submitting a written statement along with supporting documents to the Department of Education. Documentation varies based on the reason for denial, such as proving a foreclosure has been resolved or showing that an error was made on the credit report. However, financial hardships like job loss typically do not qualify as extenuating circumstances. If the appeal is successful, credit counseling on the federal student loan website is required.
Takeaways:
• Parents can appeal a denial by submitting a written explanation and relevant documentation.
• Financial hardships like job loss are generally not considered valid reasons for appeal.
• Successful appeals require parents to complete credit counseling.
Key Terms
• Extenuating Circumstances: Situations that justify reconsideration of a credit denial, such as errors in a credit report.
• Credit Counseling: A required educational session for approved parent PLUS loan borrowers with prior denials.
🤝 How to Get a Parent PLUS Loan with Bad Credit
Even if an appeal is unsuccessful, parents with bad credit may still secure a PLUS loan by adding an endorser. An endorser acts similarly to a co-signer and assumes responsibility for the loan if the parent cannot repay it. The endorser must also have a clean credit history and cannot be the student benefitting from the loan. They will need an FSA ID and must complete an online addendum. If approved, the parent is expected to complete credit counseling.
Takeaways:
• Adding an endorser can help parents qualify for a PLUS loan despite bad credit.
• The endorser cannot have adverse credit history and must complete an online addendum.
• Approved parents must complete credit counseling.
Key Terms
• Endorser: A person who agrees to repay the loan if the borrower cannot.
• FSA ID: A unique identifier required for accessing federal student aid programs.
💡 What Happens if You're Denied a PLUS Loan?
Applying for a parent PLUS loan—even if denied—can still be beneficial. If a parent is denied, their child may qualify for additional federal unsubsidized student loans. The loan amount increases by $4,000 per year for first- and second-year students and $5,000 per year for third-year students and beyond. If additional funds are needed beyond federal student aid, parents can explore private loan options through banks, credit unions, or online lenders. However, private loans often come with higher interest rates and stricter credit requirements.
Takeaways:
• A parent PLUS loan denial may allow the student to borrow more federal funds.
• Additional federal unsubsidized loans range from $4,000 to $5,000 annually.
• Private loans can be an alternative, but they often have higher interest rates.
Key Terms
• Unsubsidized Loan: A federal student loan that accrues interest while the borrower is in school.
• Private Student Loan: A non-federal loan issued by banks, credit unions, or online lenders.
Conclusion
Being denied a parent PLUS loan isn’t the end of the road. Parents have multiple options, including appealing the decision, adding an endorser, or turning to private loans. Additionally, a denial can allow the student to qualify for extra federal aid. Understanding these choices can help parents navigate the best path forward for financing their child's education.
