Parent Plus Loans: Everything You Need To Know
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Student loans. The mere mention is enough to strike serious fear in the hearts of the average college student. Imagine the stress of financing an entire four- or five-year degree! But with Parent Plus Loans, you really can make it happen with a little help from mom and dad. But you need to know your stuff because as much as they can be a great option, they can also become a nightmare. So here’s everything you need to know about Parent Plus Loans: eligibility requirements, the application process, and repayment options.
In this article
What are Parent PLUS Loans?
Parent PLUS Loans are a type of federal loan designed to help families pay for their child's college education. This particular loan is exclusively available to parents and can help bridge the gap between what the student receives in aid and the full cost of attendance. It allows parents to borrow up to the total cost of their child's undergraduate tuition minus any other aid already granted to the student.
The Parent PLUS Loan's eligibility requirements differ from other federal loans. Before borrowing, both parent and student must complete the Free Application for Federal Student Aid (FAFSA) form. The parent will have to pass a credit check to determine if they meet certain criteria. Parents who do not pass this screening may be able to become eligible with an endorser or by appealing the decision, though approval is not guaranteed in either case.
The pros of a Parent PLUS Loan include flexibility and low-interest rates, often lower than private lenders. The loan also provides more time for repayment than private alternatives, allowing parents nearly 10 years after their child leaves school to finish making payments.
However, one potential con of a Parent PLUS Loan is that if it remains unpaid long enough to be sent into collections, it can damage both parents’ and students’ credit scores. As any type of debt can be difficult or even impossible to discharge in bankruptcy, beginning repayments quickly after graduation is essential.
Ultimately, it's important for parents to carefully evaluate all their education financing options before taking out a Parent PLUS Loan. For eligible applicants who can handle payments promptly and understand the risks associated with debt accumulation, such a loan may prove helpful in affording an undergraduate degree for their child.
5.54% - 15.86% VARIABLE rate APRs 3.54% - 14.83% FIXED rate APRs
- Easy online application!
- No origination fees, late fees, and no insufficient fund fees
- Flexible repayment options to help you find the right loan for you
- Student loans for college, graduate, law, MBA, Health Professionals, and Parent loans
- Students are 5x more likely to be approved with a cosigner
- 0.25% discount when you set up autopay
Who is eligible for Parent PLUS Loans?
Parent PLUS Loan eligibility is based on the parent's credit history. To be eligible to apply, the parent needs to have a clean credit history with no major issues, such as unpaid debts or delinquencies reported in the past 5 years. If a parent has an adverse credit history and cannot qualify, students may remain eligible for loans without their parents – although this could mean taking out additional loans that must be paid back.
In addition, only parents of dependent undergraduate students, including spouses and step-parents, may apply for Parent PLUS Loans. Grandparents and other relatives are not eligible. But in the event of a divorce or separation, if the student’s custodial parent has remarried, then both may apply for a separate loan on behalf of the student.
The maximum amount that can be borrowed with a Parent PLUS Loan equals the cost of attendance (minus other financial aid received). However, it’s important to consider whether taking out a large loan will be a safe enough option when considering repayment if you haven't first tried other financing options. Borrowers should also consider their overall financial picture before applying because repayment begins within 60 days of full disbursement, even though 10-year repayment periods are standard and may extend up to 25 years, depending on individual circumstances.
How much can parents borrow with Parent PLUS Loans?
Each academic year, parents can borrow up to the total cost of attendance minus any other financial aid the student has received. This includes tuition and fees, room and board, books, supplies, and reasonable living expenses. In certain cases, the loan amount may include reasonable distance-learning expenses too. Direct costs alone can add up to more than $50,000 annually, depending on the school and the degree program.
It’s important to note that a parent may not borrow more than what is needed for educational costs. Parents should develop a budget and use those cost of attendance figures as a guideline when considering PLUS Loan limits. A common misconception concerning Parent PLUS Loans is that one can borrow whatever percentage of total costs one wants; however, this depends on two factors – whether or not the student is eligible for other forms of financial aid and how much borrowing power is available from other sources as well.
As with any type of loan, it’s important to consider your affordability and financial goals before signing on the dotted line. If you’re between jobs or facing any hardship that could make it tough to repay your loan within the 10-year grace period, you might want to find another source for funding your child’s education or re-consider the cost of attendance.
Ultimately, borrowers should understand that Parent PLUS loans are crucial for financing higher education.
Loan limits
A student’s cost of attendance determines these limits in school, which is calculated by their college or university and includes tuition, room and board, books, fees, medical expenses, supplies, transportation, and miscellaneous living expenses. The yearly loan limit on this type of loan equals the cost of attendance minus any other financial aid.
This means many parents do not take out the full amount allowed or fail to meet the cost of attendance to take out a loan. Parents have argued that loan limits should either increase so more students can get help with the rising cost of college or that the federal government should cover all college costs beyond what can be covered by scholarships and grants, eliminating the need for student loans altogether.
The benefits of increasing loan limits include reducing parental stress and worry about covering too much debt associated with school tuition payments. On the other hand, giving free money to students could reduce their monetary obligation toward their education and motivate them to stay in school since there would be no penalties for dropping out after enrollment.
The debate about whether or not to increase Parent PLUS Loan limits continues. Moving forward in understanding repayment options and interest rates can help parents decide if taking out a Parent PLUS loan is right for them or their child.
5.54% - 15.86% VARIABLE rate APRs 3.54% - 14.83% FIXED rate APRs
- Easy online application!
- No origination fees, late fees, and no insufficient fund fees
- Flexible repayment options to help you find the right loan for you
- Student loans for college, graduate, law, MBA, Health Professionals, and Parent loans
- Students are 5x more likely to be approved with a cosigner
- 0.25% discount when you set up autopay
Repayment options and interest rates
Parents have several repayment options when taking out a Parent PLUS Loan for their student. Some of the most popular include conventional, extended, graduated, and income-contingent repayment.
- Under a conventional repayment plan, parents would pay a fixed monthly amount for up to 10 years on the loan.
- An extended repayment plan can extend the loan term from 10 to 25 years, depending on the amount borrowed.
- A graduated repayment plan allows you to pay lower amounts initially, then increase them over the remaining loan term.
- A full pre-payment option allows parents to make a one-time payment of the entire principal balance plus any accrued interest. This is a great option for those who can afford it and want to eliminate their debt quickly.
- A partial pre-payment option allows parents to pay more than the minimum monthly payment but not the entire loan balance. This could benefit those who still have other financial commitments to fulfill and cannot afford a full pre-payment option. Additionally, partial pre-payments can help reduce overall interest paid over time.
Lastly, according to federal guidelines, the income-contingent repayment plan ties your monthly payments to your income and family size. However, it's important to note that this may result in higher overall payments than other repayment methods due to compounding interest costs.
The federal Parent PLUS Loans interest rate is tied directly to the current 10-year Treasury Note rate plus an additional 4.276%. Although this is lower than private loans or other debt financing options, some argue it’s still too high, given that it's a federal loan program with very low default rates. However, others point out that private lenders can offer significantly better terms if they are willing to take on more risk, which is worth considering before taking on any loan product. Ultimately the best choice for you and your student will depend on individual circumstances and the payment method available.
It’s also important to note that although these loans do not require creditworthiness from borrowers, parents who miss payments or default on a Parent PLUS Loan can experience damaging consequences such as lower credit scores or difficulty accessing future loans. As such, understanding your repayment options and finding one that works best for you is essential before pursuing a Parent PLUS Loan.
Related: Best Private Student Loans of 2023
Pros and cons of Parent PLUS Loans
Pros
- Taking out a Parent PLUS loan allows parents to invest in their children’s college education. This can be beneficial for parents who might not have enough money saved for college costs and may struggle with the high cost of tuition. The loans provide worthwhile access to additional financial resources, making the college option available for many students who otherwise might not attend.
- These loans also offer flexibility in terms of repayment plans. Parents have up to 25 years to repay the loan, which is significantly more than typical education loans. This helps to reduce the monthly payments and afford greater affordability.
- This type of loan also offers fixed interest rates and numerous deferment and forgiveness options if needed.
Cons
- The primary drawbacks associated with Parent PLUS loans are the high interest rates and origination fees, which are often considerably higher than federal student loans (sometimes as much as 6-7%). In addition, parents are only eligible under limited circumstances to receive loan forgiveness or cancellation once they reach their repayment phase. These factors typically contribute to substantially higher borrowing costs than other types of student loans.
- Parent PLUS borrowers assume expanded responsibility for repaying their debt. The decision to take on the debt will also impact your credit score and your child's ability to land any future private student loans due to them being included in your credit history.
- If parents can no longer make payments on the loan due to a job loss or cutback in salary, it is unlikely that any relief will be provided during hardship periods to avoid defaulting on repayments.
FAQs
What are the eligibility requirements for Parent Plus Loans?
The eligibility requirements for Parent Plus Loans vary by lender but generally include being a parent or legal guardian of a dependent undergraduate student. The student must be enrolled at least half-time in an eligible degree program. The parent or guardian applying for the loan must have an acceptable credit score or a lack of adverse credit history. Additionally, students must meet certain income and asset requirements typically based on their most recent tax return.
Are there other types of loans that can be used instead of a Parent Plus Loan?
Yes, parents can consider other types of loans instead of a Parent Plus Loan. For example, parents can borrow Federal Direct or Stafford Loans in their own name. Private loans or home equity lines of credit may also be considered for student expenses. Each loan type has different terms and conditions, so comparing rates, repayment options, and extra costs is important before choosing one over the other. Parents and students should research Federal Direct Loans first since they typically offer the lowest fixed and variable interest rates and eligibility for certain loan forgiveness programs. Additionally, they may be eligible to receive more generous repayment plans with federal loans than with private lenders.
What are the interest rates associated with Parent Plus Loans?
Parent Plus Loans typically have a fixed interest rate of 7.54% for the 2022-2023 academic year. This is higher than the rates typically associated with other student loan options, such as private student loans or direct subsidized loans, usually between 4% and 9%. That said, parents who take out Parent Plus Loans often receive borrower benefits that help reduce their loan's overall cost, such as an extended repayment period and no origination fees. These benefits can make the higher rate more manageable over the life of the loan.
5.54% - 15.86% VARIABLE rate APRs 3.54% - 14.83% FIXED rate APRs
- Easy online application!
- No origination fees, late fees, and no insufficient fund fees
- Flexible repayment options to help you find the right loan for you
- Student loans for college, graduate, law, MBA, Health Professionals, and Parent loans
- Students are 5x more likely to be approved with a cosigner
- 0.25% discount when you set up autopay
The bottom line
Parent PLUS Loans, also called Federal Direct PLUS loans, allow parents with good credit to borrow on behalf of their child's education. Loan limits are determined by a student's cost of attendance and include tuition, room and board, books, fees, medical expenses, and other living expenses. When deciding whether or not to take out a Parent PLUS loan, consider the stress associated with too much debt and the motivation for students to stay in school when their monetary obligation is reduced, as well as your own financial situation to determine if you can handle the additional debt.
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