Parent PLUS Loan: A Complete Guide for Parents

Education costs are skyrocketing, and many parents find themselves turning to loans to help their children pay for college. One of the most popular options for parents is the Parent PLUS Loan, a federal loan that can help cover tuition, fees, and other educational expenses. But before jumping into this loan option, it’s essential to understand how it works, the eligibility requirements, and both its pros and cons.

In this guide, we’ll walk you through everything you need to know about the Parent PLUS Loan, from application to repayment and everything in between.

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What is a Parent PLUS Loan?

A Parent PLUS Loan is a federal student loan available to parents of dependent undergraduate students. It allows parents to borrow money to help cover the cost of their child’s education when federal student aid doesn’t fully meet the need. Unlike other federal loans, Parent PLUS Loans are in the parent’s name, not the student’s, and parents are responsible for repaying the loan.

This loan is issued by the U.S. Department of Education and can be used to cover tuition, room and board, books, and other school-related expenses.

Eligibility Criteria

Before applying for a Parent PLUS Loan, parents must meet certain eligibility criteria. These include factors like the parent’s credit history and the student’s enrollment status. Let’s break down the requirements.

Credit Check Requirements

One of the key eligibility factors for a Parent PLUS Loan is the credit check. The parent applying for the loan must not have an adverse credit history. The Department of Education will check the parent’s credit report to ensure there are no defaults, bankruptcies, or delinquencies. If the parent has a negative credit history, they may still be able to qualify for the loan with a creditworthy endorser (a co-signer).

How Much Can You Borrow?

The amount a parent can borrow through a Parent PLUS Loan depends on several factors, primarily the cost of attendance at the school the student is attending.

Borrowing Limits per School

There is no set dollar limit on how much you can borrow, but you can only borrow up to the cost of attendance (as determined by the school) minus any other financial assistance the student receives. This means that if the school’s total cost of attendance is $30,000, and your child has received $10,000 in other aid, you could potentially borrow up to $20,000.

Interest Rates and Repayment Terms

Understanding the interest rates and repayment terms of a Parent PLUS Loan is crucial. These factors can significantly impact the cost of the loan over time.

Fixed vs. Variable Rates

Parent PLUS Loans have a fixed interest rate, meaning the rate will not change throughout the life of the loan. As of 2024, the interest rate for Parent PLUS Loans is 7.54%, which is relatively high compared to other federal student loans. It’s important to know that interest accrues while the student is still in school.

Repayment Options

There are a few different repayment plans available for Parent PLUS Loans, depending on your financial situation.

1. Standard Repayment Plan: You’ll make fixed monthly payments for up to 10 years.
2. Graduated Repayment Plan: Payments start lower and gradually increase every two years. This plan is designed for those who expect their income to rise.
3. Income-Contingent Repayment Plan: This plan adjusts your monthly payments based on your income, making it more flexible for parents with variable earnings.

How to Apply for a Parent PLUS Loan

Applying for a Parent PLUS Loan is a relatively straightforward process, but there are a few steps you need to follow.

Application Process

1. Fill out the FAFSA: Before applying for a Parent PLUS Loan, your child must complete the Free Application for Federal Student Aid (FAFSA). This is the first step to qualify for federal student aid, including the Parent PLUS Loan.
2. Submit the PLUS Loan Application: Once the FAFSA is completed, you can apply for the loan at studentloans.gov. You’ll need to log in with your Federal Student Aid (FSA) ID.
3. Credit Check: As mentioned, the Department of Education will perform a credit check to assess your eligibility.
4. Loan Approval and Disbursement: Once approved, the loan funds will be disbursed directly to the school, and any remaining balance will be sent to the parent borrower.

Required Documentation

To apply for a Parent PLUS Loan, you will need the following:

• Your FSA ID and the student’s FSA ID.
• A credit check authorization.
• The school’s cost of attendance details (this is typically provided by the school).

Advantages of Parent PLUS Loans

While Parent PLUS Loans come with some downsides, they also offer several key advantages.

Flexibility in Loan Usage

One of the greatest benefits of a Parent PLUS Loan is that it can be used for nearly all educational expenses. This includes tuition, fees, room and board, books, and even transportation costs. If the student’s school charges for anything related to their education, the loan can likely cover it.

Immediate Availability

The Parent PLUS Loan application process is quick. Once approved, funds can be disbursed directly to the school within weeks, which can be a lifesaver when a tuition deadline is approaching.

Disadvantages of Parent PLUS Loans

Despite the advantages, there are a few downsides to consider before applying.

High Interest Rates

Compared to other federal student loans, the interest rates for Parent PLUS Loans are relatively high. As mentioned earlier, the rate is fixed at 7.54% for loans disbursed in 2024. This rate is higher than the rates for other federal loans like the Direct Subsidized Loan (which is currently 5.50%).

Parent Responsibility

Unlike federal student loans, Parent PLUS Loans are the responsibility of the parent, not the student. This means that parents are on the hook for repaying the loan, even if the student does not graduate or struggles to find a job.

Alternatives to Parent PLUS Loans

If a Parent PLUS Loan doesn’t seem like the right option for your family, there are several alternatives to consider.

Private Loans

Many private lenders offer education loans that can be used for your child’s education. While these loans can sometimes come with lower interest rates, they also may have less favorable repayment terms and lack the benefits of federal loans.

Federal Student Loans

Another option is for the student to apply for federal student loans themselves. These loans often have lower interest rates than Parent PLUS Loans, and they don’t require the parent to take on debt.

Frequently Asked Questions (FAQs)

Can parents refinance a