Summary

When applying for federal direct PLUS loans, parents and graduate students must meet certain credit standards set by the Department of Education. If you have an adverse credit history, you may not automatically qualify—but there are still options that may allow you to secure a loan.

📉 What Is Adverse Credit for PLUS Loans?

Adverse credit history is a specific standard used by the Department of Education to assess eligibility for federal direct PLUS loans. This affects both parents applying for Parent PLUS loans and graduate students seeking Grad PLUS loans. Essentially, you’re considered to have adverse credit if your credit report includes serious financial issues. These include being more than 90 days late on over $2,085 in total debt, having any charged-off or collections accounts within the past two years, or having certain major financial events—such as bankruptcy or a federal student loan write-off—within the past five years. Even if you're unsure about your current credit status, you can check your credit report for free to get clarity.

Takeaways:

• Adverse credit includes recent delinquencies, charged-off accounts, and major financial events like bankruptcy or student loan write-offs.

• Having adverse credit may disqualify you from a PLUS loan unless you take additional steps.

Key Terms

• Adverse Credit: A negative financial history that includes past due accounts, collections, charge-offs, or serious credit issues.

• Charged Off: A debt that a lender has written off as a loss but may still pursue for collection.

• PLUS Loan: A federal loan available to graduate students and parents of undergraduate students that requires a credit check.

🛠️ How to Get a PLUS Loan With Adverse Credit

If you have adverse credit, you're not completely out of options. There are two key ways you can still qualify for a PLUS loan. First, you can apply with an endorser—someone with no adverse credit history who agrees to repay the loan if you can’t. This person will need their own FSA ID and can complete the endorsement online or via a paper form. Second, you can appeal the credit decision by providing documentation that either disputes the credit information or explains extenuating circumstances. For example, proving a temporary setback or an error on your credit report may help your case. However, not all appeals are approved, and issues like job loss typically don’t qualify as valid extenuating circumstances.

Takeaways:

• Use an endorser with good credit or appeal the decision with appropriate documentation to still qualify for a PLUS loan.

• Complete PLUS Credit Counseling as part of the process when applying under these conditions.

Key Terms

• Endorser: Similar to a co-signer, someone who agrees to repay a PLUS loan if the borrower cannot.

• Appeal: A formal process to challenge the credit denial based on incorrect data or special circumstances.

• PLUS Credit Counseling: A required online counseling session for borrowers with adverse credit who are still seeking a PLUS loan.

📊 How PLUS Loan Credit Standards Compare

PLUS loans fall somewhere in the middle when it comes to credit requirements. Federal direct subsidized and unsubsidized loans don’t require any credit check at all, making them more accessible. On the other end of the spectrum, private student loans do require a credit check—and typically a good or excellent score for approval. Plus, the interest rate on private loans is often directly tied to your credit score. With PLUS loans, your score isn’t the main concern; rather, it's whether your credit is considered “adverse.” So while credit is reviewed, it won’t influence your interest rate. Understanding where you fall in this range can help you figure out the best student loan option for your situation.

Takeaways:

• Federal direct loans have the least restrictive credit requirements.

• PLUS loans require a credit check but not a specific credit score.

• Private loans often demand high credit scores and tie interest rates to them.

Key Terms

• Federal Direct Loan: A student loan offered directly by the U.S. government that doesn’t require a credit check.

• Private Student Loan: A loan from a private lender that generally requires a strong credit score.

• Credit Score: A number that represents your creditworthiness, which can impact your ability to get loans and the terms you receive.

Conclusion

Having adverse credit doesn’t automatically mean you can’t help fund education through a PLUS loan. By understanding what constitutes adverse credit and exploring options like an endorser or a credit appeal, you still have a pathway forward. Keep in mind that other loan types, such as federal direct loans, might offer an easier approval process, especially for borrowers without strong credit history. Use the FAFSA as your entry point and don’t hesitate to review your credit report regularly to stay informed and prepared.