What Are the Credit Requirements for Getting a Plus Loan?

A PLUS loan is a loan parents can get to help their children with college expenses after they enter college. Though a PLUS loan is a wonderful way for parents to help children get started in college, since the loans are credit based, it is not something all parents can do for their students. If the parent has adverse credit, then he or she will not be able to get a PLUS loan for the student and will need to seek alternate sources of funding through a private lender with or without a cosigner.

What Is a PLUS Loan?

A PLUS loan is a Parent Loan for Undergraduate Students. The loan is taken out in the parents name to cover the student expenses that financial aid will not cover. It is not a need based loan, so if the parents do not have good credit, the loan will likely be denied.

What Is Good Credit?

Good credit is usually around 675 or higher. The higher the credit score, the lower the interest rate on the loan will be because the borrower is less risk to the bank. If the score is not at least a 625, the loan will typically be denied. If the score falls between a 625 and 675, some lenders may be wiling to approve the loan provided the borrower can explain the bad history and provides proof that existing circumstances are different than what they were at the time of the negative report.

What Is Adverse Credit?

In terms of consideration for a PLUS loan, the parent should not have any 90 day late payments on any debt. There should not be any Title IV debt within the last five years. This includes bankruptcy discharge, tax liens, foreclosure, wage garnishment, or write-off. If this type of debt is present on the credit report within the last five years, the loan will likely be denied.

How Is Credit Determined?

The FICO score, or the number used to rate your credit is determined based on a calculation something like this:

35% of the score is the payment history itself

30% of the score the is the total outstanding debt. The higher your debt, the lower your score, to prevent you from becoming bogged down with debt.

15% is the length of your credit history. Parents of college aged children should have a satisfactory credit history.

10% is the recent inquires on the report. Don't shop around too much!

10% is the types of credit in use. For instance, a mortgage, an auto loan, and a couple credit cards are normal to see on a credit report. If the credit is all credit cards, it is different because it doesn't show long term commitment to paying the bills.

What Happens If You Can't Get Approved for a PLUS loan?

Since only the parents and legal guardians of a student can apply for a PLUS loan, if the parents are denied for the loan, the only other option is to seek private funding through another lender. Other lenders will allow a non parent relative to take out the loan or to cosign for the loan to ensure the student gets the funding he or she needs to cover the difference between the true cost of the education and what financial aid will cover based on student need. 

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