Other Direct Stafford Loans

If the student does not qualify for need-based financial aid because the EFC is greater than the COA, it may be beneficial for the student to borrow using Unsubsidized Stafford loan, rather than the parents to borrow via a PLUS loan.

There may be a better possibility that the student will be able to deduct the student loan interest from the Unsubsidized Stafford loan than the parents will be able to deduct the interest on a parent PLUS loan.

The Financial Aid Administrator (FAA) has the authority to determine that the parents are “precluded by exceptional circumstances from borrowing a PLUS loan.”

The student can then borrow a Federal Unsubsidized Stafford loan up to the independent student limit. The regulations gives several examples of what might be considered “exceptional circumstances”. They are: “student’s parent receives only public assistance or disability benefits, the parent is incarcerated, the parent has an adverse credit history, or the parent’s whereabouts are unknown.”

When the student graduated from school and claims himself/herself on the student’s tax return, the student can deduct the interest paid on the Unsubsidized Stafford loan.

Since the interest accrues during school years, and repayment is deferred until after graduation for an Unsubsidized Stafford loan, the student will be eligible for a substantial student loan interest deduction. The parents’ income level may be greater than the interest deduction phaseout limit, and they will be unable to deduct any of the interest for the PLUS loan on their tax return.