What Is A Parent PLUS Loan?

Parent PLUS loans are a common financial aid option for parents who want to help their undergraduate student pay for college.

Although it offers advantages like accessing loan amounts up to the school’s cost of attendance minus existing aid, there are some notable details to consider before you apply.

What Is a Parent PLUS Loan?

A parent PLUS loan falls under the federal Direct Loan Program offered by the U.S. Department of Education. It’s the only student loan option directly accessible to parents for their dependent child who’s an undergraduate college student.

Eligible parents can use this loan to cover the financial aid gap between the student’s aid and the school’s reported cost of attendance. Funds from the loan can be used to cover school-related expenses, like tuition and school fees, books and supplies, transportation or housing.

How Does a Parent PLUS Loan Work?

You can apply for a parent PLUS loan if you have a child enrolled at an accredited college or university as an undergraduate student. The process requires a credit check and parents must not have adverse credit.

If you have adverse credit, you can add a willing endorser who doesn’t have adverse credit to the loan agreement. If you experienced extenuating circumstances that caused your credit to drop, you can make a claim and submit supporting documentation to the Department of Education for review. If approved under either situation, you’ll also need to complete credit counseling.

Parent Plus Loan Costs and Disbursement

The parent PLUS loan rate is currently at 8.05%. Once you sign your master promissory note, your interest rate is locked in, regardless of any annual changes.

Along with principal interest payments, Federal Student Aid automatically deducts a 4.228% fee before disbursing the funds. The remaining amount is sent directly to the school to cover unpaid charges on the student’s account.

Residual funds are sent to the parent borrower as a refund, which can be used for the student’s other education-related expenses. Additional funds can also be sent directly to the student if the parent wishes.

Repaying Parent PLUS Loans

Parent borrowers are solely responsible for repaying PLUS loans.

When you accept a parent PLUS loan, a student loan servicer will track your loan’s status and collect payments. You must pay your servicer immediately after your school receives the loan funds unless you request a deferment. Interest continues to accrue during deferment, but you can make interest-only payments to avoid capitalized interest.

Federal student loan borrowers, including those with parent PLUS loans, have a standard repayment plan over a 10-year period. The standard repayment plan will save you the most on interest charges, but other repayment plans are available, including:

  • Graduated plan. Monthly payment starts low and gradually increases biennially over your standard repayment. This option can be good if you expect your salary to increase significantly over time.
  • Extended plan. This plan offers consistently low monthly payments spread over 25 years allowing for manageable monthly payments. However, an extended plan does incur more overall interest charges throughout your term.

An Income-contingent repayment (ICR) plan is the only income-driven repayment (IDR) option available to parent borrowers. To be eligible for ICR, you must first consolidate your parent PLUS loan into a direct consolidation loan. For parent borrowers pursuing student loan forgiveness, being on an IDR plan, specifically ICR, is a requirement.

Pros and Cons of Parent PLUS Loans

Borrowing a parent PLUS loan in support of your child’s education is a generous gift for your college student. Even so, there are still some pros and cons to consider:

Pros Cons
Fixed interest rates High fees
Multiple repayment options High interest rate
In-school deferment available Requires credit check
Eligible for federal benefits Not transferable to the student
Borrow up to the school’s cost of attendance Only for parents of undergrad students

Requirements for a Parent Plus Loan

First, you must meet the basic eligibility criteria for federal aid by having U.S. citizenship or eligible noncitizen status, a valid Social Security number, and other criteria.

For parent PLUS loans, you must be a biological or adoptive parent of a dependent undergraduate student. Other family members, such as grandparents or legal guardians, are ineligible to apply for a parent PLUS loan.

The student must also be enrolled at least half-time at a participating school that accepts parent PLUS aid.

How To Apply for a Parent PLUS Loan

If a parent PLUS loan sounds right for you, here’s how to apply:

  1. Ensure your child completes a Free Application for Federal Student Aid (FAFSA). To start the process, your student must fill out and submit their FAFSA. They can do so online at StudentAid.gov or download and print an application to mail it in.
  2. Initiate a parent PLUS loan application. If the school instructs you to file an application online, log into your account on StudentAid.gov to get started.
  3. Fill out the loan details. Enter information regarding the loan, including the award year, your desired loan amount, the intended school attending and the student’s information. You can also request in-school deferment and set up your refund payment delivery.
  4. Provide your personal information. Fill out the “borrower information” section fields, including your contact information, citizenship status, relationship to the student and employer information.
  5. Review your application for errors. In the next step, review your responses and make corrections where needed.
  6. Consent to a credit check and submit. Make sure to review the disclosures, certify that you’ve read them and agree to a credit check. Once you’ve submitted your application, log into your StudentAid.gov account to see your application status.

Parent PLUS Loans Alternatives

Parent PLUS loans offer aid to families who want additional financial support, but they’re not the only option and certainly not for everyone. For example, a private student loan might be a good alternative, if you have good credit.

Some lenders offer private loans for parents that have lower interest rates than parent PLUS loans, and many don’t charge origination fees. This means more savings as a parent borrower overall.

Before getting a parent PLUS loan to help pay for your child’s education, compare your options across a handful of lenders.

Check Also

Private Student Loan Rates: January 23, 2024—Loan Rates Jump Up

The average interest rate on 10-year fixed-rate private student loans rose last week. For borrowers …

Leave a Reply

Your email address will not be published. Required fields are marked *