Taking on new debt is a decision to think through carefully. Here’s what you need to know about parent PLUS loans to decide whether they’re an affordable way to meet your college funding needs.
What Is a Parent PLUS Loan?
A parent PLUS loan is a federal direct student loan that’s offered to parents of dependent undergrads who are enrolled at least half-time. It offers flexible borrowing limits that let parents borrow up to their student’s full cost of attendance, minus any other financial aid they receive. The borrowing parent must have relatively good credit to qualify, and they (not the student) will own and repay the loan. Grandparents (unless they’ve adopted the student and the student is a dependent) and guardians aren’t eligible for parent PLUS loans.
Parent PLUS Loan Rates and Fees
One key factor in identifying the best student loan is loan costs, such as student loan rates and fees. Parent PLUS loan interest rates and fees for the 2022-2023 school year equal 7.54%. That is significantly higher than the 4.99% rate offered on Direct Loans extended to undergrads for the same period. All federal student loans charge a one-time origination fee, which is withheld from your loan funds. The parent PLUS loan origination fee is 4.228% of the principal for loans disbursed in the school year after October 1, 2020.
Parent PLUS Loan Limits
You can borrow up to your child’s full cost of attendance each school year, minus all other student aid. Your child’s school sets the cost of attendance, which is a sum of all education-related expenses. Student aid such as scholarships, grants, or your child’s student loans are applied to this total cost. The difference between student aid granted and remaining costs is how much you can borrow with parent PLUS loans.
Parent PLUS Loan Credit Requirements
The Department of Education requires that parent PLUS loan applicants have a relatively clean recent credit history. You cannot have the following marks on their credit report in the past five years:Default
Bankruptcy dischargeRepossessionForeclosureCharge-off or write-off of federal student aidWage garnishmentTax lien
Additionally, you can’t have any 90-day delinquencies, charge-offs, or collections on accounts with balances of more than $2,085.
Parent PLUS Loans Pros and Cons
Pros Explained
Borrow up to your student’s full cost of attendance: You have the option of covering the entire cost of your child’s education.Fixed student loan rates: All PLUS loan borrowers get the same fixed student loan rate, set by law each school year. Access to federal student loan benefits: Parent PLUS borrowers can take advantage of forbearance, deferment, loan forgiveness, and other programs afforded to direct-loan borrowers..
Cons Explained
Non-adverse credit history required: Borrowers have to have a relatively clean credit history over the past five years, such as no bankruptcies, defaults, or tax liens. High interest rates and fees: PLUS Loan rates and origination fees are higher than federal student loans for undergraduates Not eligible for all federal student loan repayment plans: Borrowers have three options for repayment: standard, graduated, or extended.
How to Get Parent PLUS Loans
Step 1: Fill Out the Parents Part of the Free Application for Federal Student Aid (FAFSA)
On the parent’s portion of the FAFSA, you’ll provide details about your household and financial situation, including certain income and assets. That determines your family’s ability to pay toward your child’s college education, also called the “expected family contribution” (EFC).
Step 2: Review Your Student Aid Options
Once your FAFSA is processed, you receive a student aid report outlining federal student aid. Your child’s college will also send a more complete student aid offer. Review what’s available and how to best use student aid to minimize out-of-pocket costs and borrowing.
Step 3: Check Your Parent PLUS Loan Eligibility
If you decide to use parent PLUS loans, you’ll need to meet these requirements:
Be the biological parent or adoptive parent of a dependent undergraduate student who is enrolled at least half-time. Have a non-adverse credit history. If you do, you also must be able to satisfy additional requirements. Meet other basic federal student aid eligibility requirements, such as being a U.S. citizen or permanent resident.
Step 4: Complete a Parent PLUS Loan Application
You can complete a parent PLUS loan application online using the FSA ID and account you created to file a FAFSA, or through your student’s school’s financial aid office. You’ll provide basic info on yourself as the parent, your child, their school, and your loan. You can also indicate how you want loan funds disbursed and whether you want to defer payments while your child is in college.
Step 5: Sign a Master Promissory Note and Receive Loan Funds
Finally, you’ll sign a Master Promissory Note through the school’s financial aid office—the loan agreement that outlines the terms of your parent PLUS loan, which includes your promsite to repay your loans, interest, and fees. Loan funds are then disbursed to your child’s school and applied to outstanding charges for room, board, tuition, and fees. The school pays out remaining funds to you or the student, per your selection on the loan application.
Options if Your Parent PLUS Loan Is Denied
Not everyone will qualify for a parent PLUS loan, but if you’re denied you can try these alternatives:
Get an endorser for your parent PLUS loan. This is equivalent to a co-signer—someone with non-adverse credit who agrees to repay the loan if you don’t.Document extenuating circumstances. Some examples of extenuating circumstances include adverse information that’s incorrect, older than reported, or accounts that are part of a bankruptcy settlement or otherwise resolved. Start the credit appeal process to provide proof of your extenuating circumstances. You’ll also need to complete PLUS credit counseling.
If these steps don’t work, and your parent PLUS loan is denied, even that can have an upside. Students whose parents can’t get PLUS loans can gain access to more federal student loans. A dependent first-year student can only borrow up to $5,500 in federal student loans per school year, for example. But that limit goes up to $9,500 if the student’s parents were denied PLUS Loans.
Repaying Parent PLUS Loans
A parent PLUS loan is the sole responsibility of the parent borrowing it. You, not your child, will pay back this loan, so it’s wise to learn more about parent PLUS loan repayment.
Parent PLUS Loan Deferment, Forbearance, and Forgiveness
On the loan application, you can choose to defer parent PLUS loan payments during your student’s enrollment or begin making immediate full payments. You can defer or seek forbearance for parent PLUS loans in other situations, too: if you lose a job, return to school, or encounter financial hardship or other qualifying circumstances. These loans are eligible for many other federal benefits and protections as well, such as forgiveness through the Public Service Loan Forgiveness program or other avenues, such as closure of your student’s school, or a death of the borrower or student.
Parent PLUS Repayment Plans
Parent PLUS loans are eligible for four federal student loan repayment plans that can be used by parents:
Standard repayment: Fixed monthly installments over 10 yearsExtended repayment: Fixed monthly installments over 25 yearsGraduated repayment: Lower initial monthly installments that increase every two years, repaid over 10 yearsIncome-contingent repayment (ICR): Income-based monthly installments are the lesser of 20% of discretionary income divided by 12 or fixed payments over 12 years; the remaining balance is forgiven after 25 years.
Should You Get Parent PLUS Loans?
Parent PLUS loans can help some families pay for college, but they won’t be right for everyone. First, consider whether you should borrow for your child’s education at all. Consider how adding new student loan payments will affect your finances. If they’d stretch your budget too thin or detract from other important financial goals like retirement, that might be a sign that it’s wise to reconsider. If you can afford this new debt, also investigate alternatives to parent PLUS loans. Max out other sources of college funds, such as scholarships, savings, and lower-cost undergraduate federal loans, first. Private student loans might be a better fit for some borrowers, too. Parents who don’t want to shoulder this debt alone, for example, could co-sign a private student loan with their child—making both family members legally responsible for this debt.
Whom Are Parent PLUS Loans Best For?
You’re probably suited for one if you’re a parent who:
Has a student who’s borrowed up to the maximum undergrad loan limitsWants to be responsible for the debt rather than having it burden their childHas compared parent PLUS loans with private student loans, and has found that the federal option offers lower interest rates and total costsCan’t qualify for private student loansWants access to federal student loan benefits, such as deferment and forbearance, federal repayment plans, or even forgiveness
Be aware, though, that parent PLUS loan rates and fees are higher, compared with what’s offered on undergraduate federal student loans. But this type of loan does come with federal benefits like deferment, forbearance, and even forgiveness—though access to federal repayment plans is somewhat more limited than for other government loans.
