The U.S. Department of Education will soon loosen the credit standards for parents looking to borrow to pay for college under the parent PLUS loan program. The new rules will be published next month and will go into effect for the next school year.
The PLUS loan can be used to finance as much as the entire cost of college at an interest rate of 7.21 percent. Loosening standards reverses changes made in 2011, when the DOE made the loans harder to get. Only the past two years of a borrower’s credit will be considered, down from the current five years, and delinquent debts below $2,085 won’t be considered at all. The White House estimates the changes will enable 370,000 more parents to obtain PLUS loans. Even with changes, the parent PLUS loan won’t be right for every family. The total federal Stafford loan limit for students is $31,000. If a student’s parents are turned down for the PLUS loan, that student is eligible for an additional $18,000 in federal Stafford loans, which carry a lower interest rate than PLUS loans. On average, families turned down for PLUS actually gain access to lower interest rate loans.
