The cost of school can be more than what many families can afford. With the cap on federal subsidized loans and limitations based on financial need, some parents are looking for other ways to pay for their child’s education.
While private student loans might be an option, parents have the choice to apply for parent PLUS loans to cover gaps in their child’s college funding—but they come with some caveats. Learn about parent PLUS loans and if borrowing is the right move for you.
What Is a Parent PLUS Loan?
A parent PLUS loan is a type of federal student loan in which a parent borrows money for their child’s education and is responsible for those payments after their child leaves school. These loans are only available to parents of dependent undergraduate students; graduate students are considered independent, so they aren’t eligible.
Parent PLUS loans cover the cost of attendance after all other types of aid are exhausted, including grants, scholarships, work-study programs and other loans. These loans are available if the student attends an eligible school at least half-time and the parent doesn’t have an adverse credit history.
While subsidized and unsubsidized loans are given out based on a completed Free Application for Federal Student Aid (FAFSA), parent PLUS loans have a separate application you need to fill out.
Pros of Parent PLUS Loans
Because they’re federal loans, parent PLUS loans have some major benefits.
Fixed Interest Rates (Not Based on Credit)
While PLUS loans require a credit check for approval, everyone that gets one has the same interest rate. This means borrowers with a fair credit score will get the same rate as someone with excellent credit.
Borrow Up to the Cost of Attendance
Although subsidized and unsubsidized loans cap how much you can borrow, parent PLUS loans cover the cost of attendance after other aid has been applied. For borrowers, this means they might not need to take out other types of loans after this, such as private student loans.
Flexible Repayment Plans
Like many other federal loans, parent PLUS loans offer several different repayment plans, including the standard, extended and graduated plans. PLUS borrowers can also consolidate their loan into a direct consolidation loan—making them eligible for income-contingent repayment (ICR), one of the four income-driven plans.
Defer Repayment Until After Graduation
Even though you typically need to make payments while your child is in school, you can defer payments as long as your child is enrolled at least half-time. You will have to request deferment when you complete your parent PLUS loan application.
Potential for Loan Forgiveness
Like other federal loans, parent PLUS loans are eligible for forgiveness programs, including Public Service Loan Forgiveness (PSLF). As long as you meet the criteria, like working for an eligible employer and making 120 qualified payments, parent PLUS loans could be forgiven. If you sign up for ICR, the remaining balance will be forgiven after 25 years of repayment.
Cons of Parent PLUS Loans
Even though there are plenty of perks, parent PLUS loans have a few downsides to consider before you make your decision.
Credit Check Required
Most federal loans don’t require a credit check, so borrowers can qualify regardless of credit score or history. PLUS loans, however, do require a credit check, so you might not get approved if you have an adverse credit history. This doesn’t refer to a specific credit score—instead, it means having negative information included in your credit report within the past five years, such as:
- Multiple delinquent debts
- Debt that’s in default
- Wage garnishment
- Foreclosure or repossession
- Tax lien
- Debt discharge in bankruptcy
You can still complete an application if you have adverse credit. If you aren’t approved due to extenuating circumstances, you might be able to appeal the decision to potentially qualify.
Relatively High Interest Rates and Fees
Parent PLUS loans have the highest interest rates and fees of all other loans offered at the federal level.
For the 2022-23 school year, direct subsidized and unsubsidized loans for undergrads have a 4.99% fixed interest rate and 1.057% loan distribution fee; PLUS loans have a 7.54% rate and 4.228% fee.
Borrow Up to the Cost of Attendance
While this is definitely a good thing for most students, taking advantage of it could end up costing you—which is why it’s both a pro and con.
Without a limit, some borrowers might take out more than they need—which means paying more back later on (with added interest). Only borrow as much as you need to cover your child’s education costs to keep future repayment manageable.
Accrues Interest During Deferment
Student loan deferment is a great option borrowers can take advantage of to avoid paying for a loan while in school. But interest still accrues—or adds up—while the student is in school at least half-time.
If you choose deferment, that interest will capitalize and be added onto your loan—and that larger loan will continue to accrue interest. By the time you start making payments, your loan will already be much more than you originally borrowed.
Fewer Repayment Options
It’s true that parent PLUS loans are eligible for certain student loan repayment plans and benefits, but not all of them. In fact, they don’t have as many repayment options as most other federal loans.
For example, PLUS loans aren’t eligible for the other three IDR plans, which include:
- Pay As You Earn Repayment Plan (PAYE)
- Revised Pay As You Earn Repayment Plan (REPAYE)
- Income-Based Repayment Plan (IBR)
This might limit how some borrowers choose to repay their loans. Before you borrow, make sure you know what plans you’re potentially eligible for when it comes time for repayment.
No Guaranteed Grace Period
Other federal student loans start repayment off with a grace period, but PLUS loans don’t. Borrowers will need to contact their loan servicer after the student leaves school to implement a grace period. Otherwise, you might have to start repayment right after your child graduates or drops below half-time enrollment.
Should You Take Out a Parent PLUS Loan?
Parent PLUS loans can be a smart option for some borrowers, but they’re not always the best choice for every family.
Here are some situations where getting a parent PLUS loan could make sense for you:
- You’ve exhausted all other financial aid. If your child has received all of their available subsidized and unsubsidized loans and there are gaps in coverage, a parent PLUS loan might be helpful.
- You can make payments yourself. As the parent borrower, you’re responsible for repayment, not your child. So make sure you’re ready for that obligation. Also note that even if you consolidate your parent PLUS loan, it can’t be consolidated with other federal loans. You might be able to combine all your loans by refinancing with a private lender and even have the option to transfer it into your child’s name, but not all lenders offer this option.
- You want to avoid private student loans. Even though private student loans are available year-round, they don’t come with the same benefits and protections that federal student loans do. Since PLUS loans allow you to borrow up to the cost of attendance after other aid is given, you might not need to tap into private student loans at all.
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