Many students today must turn to student loans to afford their college education. But unfortunately, the loans available to students aren’t always sufficient to cover the full price tag. That’s when a PLUS loan can help parents fill the funding gap for their child.
These federal student loans allow you to borrow money for your child’s education. They don’t come with all the same perks as other federal loans, but they have some advantages. Here’s what you need to know about parent PLUS loans.
What is a parent PLUS loan?
A parent PLUS loan is a federal student loan available to parents of undergraduate students. They’re designed to cover any educational expenses that aren’t covered by other financial aid the student received.
Rather than being in the student’s name — as other federal loans are — parent PLUS loans are in the parent’s name, and the parent is ultimately the one responsible for repaying the debt. Like other federal student loans, parent PLUS loans have fixed interest rates that are set for each school year. Unfortunately, these loans carry the highest interest rate of all federal options.
While the amount that undergraduates can borrow in federal loans is limited, parent PLUS loans allow you to borrow up to the full cost of attendance for your child’s education. They’re often used in combination with other student loans.
Parent PLUS loan eligibility
A parent PLUS loan is one of a few types of Direct PLUS Loans available from the federal government. But these loans work differently than other federal options because of the borrowing requirements.
To qualify for a parent PLUS loan, you must:
- Be the biological or adoptive parent of a dependent undergraduate student attending an eligible school at least half-time
- Have no adverse credit history
- Meet the general federal aid eligibility requirements
Note:
Caretakers like grandparents, extended family, or legal guardians are not eligible for parent PLUS loans unless they have formally adopted the student.
PLUS loans are also the only type of federal student debt that requires a credit check. However, you don’t need to meet a minimum credit score to qualify. Instead, the check looks for “adverse credit,” such as bankruptcies, repossessions, wage garnishment, or tax liens in the past five years.
But even if you do have adverse credit, you may still be able to get a parent PLUS loan. Applicants can add an endorser (similar to a cosigner) to their application to get approved. Or, you can provide evidence of extenuating circumstances that led to your adverse credit. Acceptable documentation might include proof that the adverse mark was due to a credit reporting error or is based on outdated information.
Current student loan rates
Interest and fees
Like all federal student debt, parent PLUS loans come with a fixed interest rate and a one-time origination fee. However, they are the most expensive type of federal debt. Here’s what you’ll pay for loans you borrow in the 2023-24 school year:
- Interest rate: 8.05%
- Origination fee: 4.228%
Like other federal options, a parent PLUS loan can be deferred while the student is enrolled at least half-time and for six months after they graduate or leave school. However, you must manually request this deferment, or else you will begin making payments as soon as you receive the loan money.
Tip:
If you’re not able to make full payments while your child is in school, consider interest-only payments instead. Interest accrues while your loan is deferred, so paying it off each month can prevent your debt from growing before you child graduates.
How to apply for a parent PLUS loan
If you’re considering applying for a parent PLUS loan for your child, follow these steps:
- Complete the FAFSA: Just like any other federal financial aid, a parent PLUS loan requires completion of the FAFSA. This form allows you and your child to share important information about your financial situation, which is used to determine what aid, if any, your child qualifies for.
- Fill out the parent PLUS loan application: In addition to completing the FAFSA, you’ll also have to apply specifically for a PLUS loan. On this application, you’ll provide information about your child’s school and the loan amount you need, and you’ll agree to a credit check.
- Sign the repayment agreement: Once you’ve completed the application and have been approved, you’ll sign the Master Promissory Note, just as you would with any federal student loan. By providing your signature, you agree to the terms of the loan and its repayment.
- Prepare for repayment: Even if you don’t plan to make payments on your loan while your child is in school, it’s never too early to start planning for repayment. Remember that you can also start making payments right away to reduce the amount of interest that accrues.
Parent PLUS loans vs. private student loans
Many students prefer to use Direct Subsidized and Unsubsidized Loans to cover their higher education costs. These loans come with certain benefits that aren’t offered to parent borrowers, including lower interest rates and more flexible repayment.
Unfortunately, these loans aren’t always able to cover the full cost of college. When that happens, students must resort to other loan options, such as parent PLUS loans or private student loans.
Benefits of parent PLUS and private loans
Disadvantages of parent PLUS and private loans
What happens if you don’t repay a parent PLUS loan?
The consequences of not repaying a parent PLUS loan are similar to those for failing to pay back any other type of loan. Your loan will go into delinquency on the first day after you miss a payment, and will remain that way until you catch up on your payments or make other arrangements (like deferment).
Once your parent PLUS loan has been delinquent for at least 90 days, your loan servicer will begin reporting it to the credit bureaus. At that point, it’ll appear on your credit report, which can negatively affect your credit score.
Parent PLUS loan default
Once your parent PLUS loan has been delinquent for 270 days or more, you’re in default. When you’ve defaulted on the loan, the entire unpaid balance — including interest — can immediately become due. You could also have your wages garnished, and your tax returns and other federal benefits may be withheld.
Defaulting on a loan can also have major long-term consequences for your credit. A default remains on your credit report for up to seven years, severely damaging your score and making it difficult to qualify for any other type of financing.
Some parents agree to take on parent PLUS loans for their children with the understanding that their child will make the loan payments after they graduate. Unfortunately, no matter what you and your child agreed to, it’s ultimately the parent borrower that’s responsible for paying back the loan.
