A parent may be denied a Parent PLUS loan primarily due to an adverse credit history, which indicates a significant financial risk to lenders.
Understanding Parent PLUS Loan Denials
The U.S. Department of Education offers Parent PLUS loans to parents of dependent undergraduate students to help cover educational expenses not covered by other financial aid. Unlike some other federal student loans, Parent PLUS loans require a credit check as part of the application process. This credit check is a crucial step in determining eligibility, and a negative outcome can lead to a denial.
Key Reasons for Denial: Adverse Credit History
The most common reason for a Parent PLUS loan denial is the presence of an adverse credit history. This term refers to specific negative financial indicators that suggest a borrower may have difficulty repaying their debts. Lenders use these indicators to assess risk.
Examples of an adverse credit history that could lead to a Parent PLUS loan denial include:
- Significant Delinquencies: Being at least 90 days overdue in making a debt payment. This could apply to credit card bills, car loans, mortgages, or other types of debt, indicating a pattern of missed payments.
- Bankruptcy: Having a bankruptcy completed within the last five years. This demonstrates a severe financial setback that significantly impacts creditworthiness for a considerable period.
- Other Credit Issues: While the primary focus is on the above, other severe negative marks on a credit report, such as wage garnishment, foreclosure, or tax liens, can also contribute to an adverse credit history determination.
If a parent is denied a Parent PLUS loan due to adverse credit, they may still have options. These often include securing an endorser (cosigner) who does not have an adverse credit history, or documenting extenuating circumstances related to their credit history to appeal the decision.
For more detailed information on federal student aid options, including Parent PLUS loans, visit the official Federal Student Aid website.
