What is a parent PLUS loan? Navigating college finances

Sending your child off to college is a monumental milestone that can come with similarly significant expenses. With the rising costs of higher education, figuring out how to fund your child’s education is a big part of financial planning for many families. The good news is that there are numerous financial aid options, including scholarships, grants, student loans, and parent PLUS loans. 

In this guide, we walk you through the essentials of parent PLUS loans to help you decide if it’s a viable option for your family.

What does it cost to go to college? 

The overall price tag for traditional college has doubled since 2000, climbing to an average of more than $38,000 per year. Bump that up to $58,628 annually for a private, nonprofit university. 

What are parent PLUS loans?

Also known as a Direct PLUS Loan, parent PLUS loans are federal loans from the U.S. Department of Education to parents of dependent undergraduate students. These loans aim to bridge the gap for costs not covered by other financial aid. Unlike undergraduate student loans, which are in the student’s name, parent PLUS loans are issued directly to parents, who are responsible for repayment.

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Note: You must be an undergraduate student to be eligible for a PLUS loan. Graduate and professional students can apply for grad PLUS loans, which are also offered by the government.

How do parent PLUS loans work?

With Parent PLUS Loans, you may be able to borrow up to the full cost of attendance at a given institution, minus any other financial aid the student receives. 

Eligibility criteria

To qualify for a parent PLUS loan, parents must meet several requirements:

• Be the biological, adoptive, or in some cases, stepparent of the student.

• Have a dependent undergraduate student enrolled at least half-time in an eligible program.

• Pass a credit check, which looks for adverse credit history such as bankruptcies or foreclosures.

Interest rates

The interest rate is fixed over the life of the loan, making monthly budgeting more predictable. Which fixed rate you get depends on the year(s) in which you borrow. 

Additional fees

In addition to the interest rate, PLUS loans come with a loan origination fee – a percentage of the amount deducted from the amount disbursed.

Pros and cons of parent PLUS loans

Before you apply for a parent PLUS loan, consider the benefits and potential downsides. Here are some of the things to take into account: 

Pros

• High borrowing limit: Borrow up to the full cost of attendance, providing flexibility in covering various expenses.

• Fixed interest rate: Offers stability and predictability in financial planning.

• Deferment option: You can request deferment of repayment while your child is enrolled and for up to 6 months after.

• Flexible use: You can authorize schools to direct your PLUS loan funds to pay for related expenses like board and books. You can also change the loan amount of a previously submitted application. 

Cons

• High fixed interest rates: Interest rates are typically a few percentage points higher than some private loans. For 2024, the PLUS loan fixed interest rate is 9.08%. Because it’s fixed, that rate is locked in for the life of the loan, even if overall interest rates go down. 

• Responsibility on parents: The loan cannot be transferred to the student, keeping the repayment responsibility entirely on the parent.

• Origination fees: On top of interest, PLUS loans charge an origination fee of 4.228% (for 2024), which is deducted from each disbursement. Effectively, you’ll receive 4.228% less than the amount borrowed in that disbursement – but you still owe the full amount on repayment.

How to apply for a parent PLUS loan

Applying for a parent PLUS loan is pretty straightforward, but requires careful attention to detail.

1. Complete the FAFSA: Ensure your child has completed the Free Application for Federal Student Aid (FAFSA), as it is a prerequisite for federal loans.

2. Apply online: Go to the Federal Student Aid website to fill out the parent PLUS loan application.

3. Credit check and approval: Consent to a credit check. If you get an adverse credit report, consider applying with an endorser or documenting extenuating circumstances.

4. Sign the Master Promissory Note (MPN): This document lays out the terms and legally binds you to repay the loan.

Parent PLUS loan repayment options to consider

Repayment for parent PLUS loans begins immediately after disbursement (unless deferred, which would be 6 months after the student is no longer enrolled at least half-time). But, there are several strategies to manage this debt.

• Standard repayment plan: Fixed payments over 10 years, usually the fastest way to pay off the loan.

• Graduated repayment plan: Starts with lower payments that increase over time, ideal if you expect your income to grow. But you still must repay within 10 years. 

• Extended repayment plan: Lower monthly payments over a longer term. Terms are based on eligibility by loan type. 

• Income-contingent repayment (ICR): Requires loan consolidation first; allows for lower payments based on income, with potential loan forgiveness after 25 years.

Parent PLUS loans can be a valuable tool for families who need help covering education costs with the security of a fixed interest rate. However, it's essential to weigh the benefits against the potential pitfalls, such as high interest rates and the responsibility of debt repayment.

Before deciding, consider all financial aid opportunities, have a clear picture of your child’s educational expenses, and explore all loan and financial aid options. With informed decisions, you can confidently navigate this chapter of your family's financial journey.

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This blog post is provided "as is" and should not be relied upon as a substitute for professional advice. Some content in this post may have been created using artificial intelligence; however, every blog post is reviewed by at least two human editors.