Parents with a child heading to college experience a rush of emotions, which all too often can include stress over how to pay for school. One accessible source of funding for families can be parent PLUS loans, which are federal student loans for parents of undergraduates.
Taking on new debt is a decision to think through carefully. Here’s what you need to know about parent PLUS loans to decide whether they’re an affordable way to meet your college funding needs.
What Is a Parent PLUS Loan?
A parent PLUS loan is a federal student loan, specifically a Direct PLUS loan, that’s offered to parents of undergrads. It offers flexible borrowing limits that let parents borrow up to their student’s full cost of attendance, covering gaps between offered student aid and costs.
The borrowing parent must have non-adverse credit to qualify, and they (not the student) will own and repay these loans.
Grandparents and legal guardians aren’t eligible for parent PLUS loans, even if they have had primary responsibility for raising the student, unless they have legally adopted the young person.
Parent PLUS Loan Rates and Fees
One key factor in identifying the best student loan is loan costs, such as student loan rates and fees. Parent PLUS loan interest rates and fees for the 2020-21 school year equal 5.30%. That is significantly higher than the 2.75% rate offered on Direct Loans extended to undergrads for the same period.
All federal student loans charge a one-time origination fee, which is withheld from disbursed funds (i.e., the amount of money you receive will be reduced by this fee). The parent PLUS loan origination fee is 4.228% of the principal for loans disbursed in the school year after October 1, 2020. That’s four times higher than the 1.059% fee that undergrads pay on federal student loans.
Parent PLUS Loan Limits
You can borrow up to your child’s full cost of attendance each school year, minus all other student aid. Your child’s school sets the cost of attendance, which is a sum of all education-related expenses.
Student aid such as scholarships, grants, or your child’s student loans are applied to this total cost. The difference between student aid granted and remaining costs is how much you can borrow with parent PLUS loans.
Parent PLUS Loans Pros and Cons
Borrow beyond federal student loan limits for undergraduates, up to your student’s full cost of attendance.
Get fixed student loan rates. All PLUS loan borrowers get the same fixed student loan rate, set by law each school year.
Access to federal student loan benefits such as forbearance, deferment, and even forgiveness.
Choose from four repayment plans, including an income-driven option.
The parent is legally responsible to repay this student loan—not the student.
Non-adverse credit history required to qualify for a parent PLUS loan.
PLUS Loan rates are 2.55 percentage points higher than federal student loans for undergraduates.
High origination fee, taken out of loan funds before disbursement.
Not eligible for all federal student loan repayment plans.
How to Get Parent PLUS Loans
Step 1: File a Free Application for Federal Student Aid (FAFSA)
On the parent’s portion of the FAFSA, you’ll provide details about your household and financial situation, including your income and assets. That determines your family’s ability to pay toward your child’s college education, also called the "expected family contribution" (EFC).
Step 2: Review Your Student Aid Options
Once your FAFSA is processed, you receive a student aid report outlining federal student aid. Your child’s college will also send a more complete student aid offer. Review what’s available and how to best use student aid to minimize out-of-pocket costs and borrowing.
Step 3: Check Your Parent PLUS Loan Eligibility
If you decide to use parent PLUS loans, you’ll need to meet these requirements:
- Be the biological parent or adoptive parent of a dependent undergraduate student who is enrolled at least half-time.
- Have a non-adverse credit history. If you do, you also must be able to satisfy additional requirements.
- Meet other basic federal student aid eligibility requirements, such as being a U.S. citizen or permanent resident.
Your credit is deemed adverse and disqualifies you from parent PLUS loan if your report lists:
- Accounts with total balances greater than $2,085 that were more than 90 days delinquent, placed in collections, or charged off within the past two years
- A default, repossession, foreclosure, bankruptcy, tax lien, wage garnishment, or federal student loan charge-off within the past five years
Step 4: Complete a Parent PLUS Loan Application
You can complete a parent PLUS loan application online using the FSA ID and account you created to file a FAFSA, or through your financial aid office. You’ll provide basic info on yourself as the parent, your child, their school, and your loan. You can also indicate how you want loan funds disbursed and whether you want to defer payments while your child is in college.
Step 5: Sign a Master Promissory Note and Receive Loan Funds
Finally, you’ll sign a Master Promissory Note through the school’s financial aid office—the loan agreement that outlines the terms of your parent PLUS loan.
Loan funds are then disbursed to your child’s school and applied to outstanding charges for room, board, tuition, and fees. The school pays out remaining funds to you or the student, per your selection on the loan application.
Options if Your Parent PLUS Loan Is Denied
Not everyone will qualify for a parent PLUS loan, but if you’re denied you can try these alternatives:
- Get an endorser for your Parent PLUS Loan. This is equivalent to a co-signer: someone with non-adverse credit who agrees to repay the loan if you don’t.
- Document extenuating circumstances. Some examples of extenuating circumstances: adverse information that’s incorrect, older than reported, or for accounts that are part of a bankruptcy settlement or otherwise resolved. Start the credit appeal process to provide proof of your extenuating circumstances. You’ll also need to complete PLUS credit counseling.
If these steps don’t work, and your parent PLUS loan is denied, even that can have an upside. Students whose parents can’t get PLUS loans can gain access to more federal student loans.
A dependent first-year student can only borrow up to $5,500 in federal student loans per school year, for example. But that limit goes up to $9,500 if the student’s parents were denied PLUS Loans.
Repaying Parent PLUS Loans
A parent PLUS loan is the sole responsibility of the parent borrowing it. You, not your child, will pay back this loan, so it’s wise to learn more about parent PLUS loan repayment.
Parent PLUS Loan Deferment, Forbearance, and Forgiveness
On the loan application, you can choose to defer parent PLUS loan payments during your student’s enrollment or begin making immediate full payments.
You can defer or seek forbearance for parent PLUS loans in other situations, too: if you lose a job, return to school, or encounter financial hardship or other qualifying circumstances. These loans are eligible for many other federal benefits and protections as well, such as forgiveness through the Public Service Loan Forgiveness program or other avenues, such as closure of your student’s school, or a death of the borrower or student.
Parent PLUS Repayment Plans
Parent PLUS loans are eligible for four federal student loan repayment plans that can be used by parents:
- Standard Repayment: Fixed monthly installments over 10 years
- Extended Repayment: Fixed monthly installments over 25 years
- Graduated Repayment: Lower initial monthly installments that increase every two years, repaid over 10 years
- Income-Contingent Repayment (ICR): Income-based monthly installments are the lesser of 20% of discretionary income or fixed payments over 12 years; the remaining balance is forgiven after 25 years
The only income-driven option open to parent PLUS loans is ICR, which requires you to combine those loans into a Direct Consolidation Loan.
Should You Get Parent PLUS Loans?
Parent PLUS loans can help some families pay for college, but they won’t be right for everyone. First, consider whether you should borrow for your child’s education at all.
Consider how adding new student loan payments will affect your finances. If they’d stretch your budget too thin or detract from other important financial goals like retirement, that might be a sign that it’s wise to reconsider.
If you can afford this new debt, also investigate alternatives to parent PLUS loans. Max out other sources of college funds, such as scholarships, savings, and lower-cost undergraduate federal loans, first.
Private student loans might be a better fit for some borrowers, too. Parents who don’t want to shoulder this debt alone, for example, could co-sign a private student loan with their child—making both family members legally responsible for this debt.
Whom Are Parent PLUS Loans Best For?
You’re probably suited for one if you’re a parent who:
- Has a student who’s borrowed up to the maximum undergrad loan limits and is able and willing to help
- Wants to be responsible for this student debt rather than having it burden their child
- Has compared parent PLUS loans with private student loans, and has found that the federal option offers lower interest rates and total costs
- Can’t qualify for private student loans
- Wants access to federal student loan benefits, such as deferment and forbearance, federal repayment plans, or even forgiveness.
The Bottom Line
Parent PLUS loans can be an accessible way for families to get more money for college, allowing them to borrow beyond federal student loan limits for undergraduates.
Be aware, though, that parent PLUS loan rates and fees are higher, compared with what’s offered on undergraduate federal student loans. But this type of loan does come with federal benefits like deferment, forbearance, and even forgiveness—though access to federal repayment plans is somewhat more limited than for other government loans.