Parent PLUS Loans: Complete Guide
A parent PLUS loan can help cover any remaining financial gaps not covered by your child’s financial aid package. The government offers parent PLUS loans with fixed interest rates, flexible repayment options and opportunities for student loan forgiveness.
However, it’s important to weigh the pros and cons of a parent PLUS loan before applying. Depending on your situation, a private parent loan might even be a better fit.
What is a parent PLUS Loan?
Parent PLUS loan details:
Here are the rates and terms for parent PLUS loans (and grad PLUS loans) for the 2023-24 school year.
- Loan amounts: Up to the full cost of attendance (as determined by your child’s school) minus other financial assistance your child will receive, such as scholarships and grants.
- Fixed interest rate: 8.05%
- Repayment term: All federal student loans automatically start on the 10-year standard repayment plan. Borrowers can switch their PLUS loans to a graduated or extended repayment plan. If consolidated, your PLUS loans are eligible for the Income-Contingent Repayment (ICR) plan.
- Loan fee: One-time 4.228% deducted from the loan disbursement
The parent PLUS loan is a type of federal student loan for parents who want to contribute toward their child’s higher education. You can borrow up to your child’s total cost of attendance minus any financial aid they will receive.
To qualify, borrowers must have a dependent child enrolled at least half time in an eligible school. Unfortunately, grandparents and other relatives can’t get a parent PLUS loan unless they legally adopt the student.
While you don’t need excellent credit to get a PLUS loan, you can’t have an adverse credit history. But even if you do have an adverse event like a bankruptcy or loan default, you might still qualify by adding a creditworthy endorser to your PLUS loan application.
Pros and cons for parent PLUS loans
| Pros | Cons |
|---|---|
Borrow as much as you need Excellent credit isn’t necessary Fixed interest rate Multiple repayment options Eligibility for student loan forgiveness | Can’t have an adverse credit history Comes with an origination fee Repayments start immediately Not eligible for all income-driven repayment (IDR) plans |
Although parent PLUS loans can help ease your child’s student loan debt burden, they aren’t the best funding solution for everyone.
While most Direct federal student loans have annual and aggregate student loan limits, the parent PLUS loan allows you to borrow as much as needed to cover your child’s qualified educational expenses. Access to extra funds could help if your child’s financial aid package falls short due to a high Expected Family Contribution (Student Aid Index).
PLUS loans don’t require good credit, making them an ideal option for low-credit borrowers. However, you can’t have an adverse credit history, such as bankruptcies or loan defaults within the past five years. If this is the case, you may need to apply with a creditworthy endorser, which is similar to a student loan cosigner.
The parent PLUS loan interest rate remains fixed for the duration of the loan, helping you stick to your budget.
On the downside, PLUS loans come with an origination fee, adding to the overall expense of borrowing. In addition, PLUS loan payments start immediately unless you apply for a parent PLUS loan deferment or forbearance.
Fortunately, however, you have several repayment options for a lower monthly bill or a longer term. You can also apply for an income-driven repayment (IDR) plan, although PLUS loans are only eligible for Income-Contingent Repayment (ICR) — and only if consolidated first.
Another significant benefit is that your PLUS loan might qualify for student loan forgiveness, depending on your occupation and other criteria.
Watch out for overborrowing
Being able to borrow up to the full cost of attendance is a big advantage for those with significant financial gaps. However, be cautious of borrowing too much with a PLUS loan, especially if your child gets a decent paying college job or reduces costs by living at home.
Before finalizing your paperwork, crunch the numbers with our student loan calculator to ensure you can handle repayment. You can always return unused student loan money if you borrow more than you need.
How to apply for a parent PLUS loan
1. Have your student complete the FAFSA
Before applying for a parent PLUS loan, your child should submit the Free Application for Federal Student Aid (FAFSA), which opens every year on Oct. 1 (although it’s delayed until December for the 2024-25 school year).
If your child qualifies for financial aid, they can access a range of low-cost funding options, such as:
2. Exhaust all scholarship and grant options
You can help your child research college scholarships that fit their criteria. While applying for scholarships takes significant time, getting free college money is worth it.
3. Calculate remaining financial gaps
Once your child has exhausted all financial aid options, including scholarships and grants, you can figure out how much extra is needed to cover basic expenses.
Keep in mind that a school’s cost of attendance is an estimate — which may be much higher than the amount your child actually needs. Your child could fine-tune their budget by buying secondhand books, living at home and avoiding expensive meals out.
4. Apply for a parent PLUS loan
You can find the parent PLUS loan application form online at StudentAid.gov. Contact your child’s school’s financial aid office for assistance or questions.
5. Pick your repayment plan
PLUS loans for parents automatically go on the 10-year standard repayment plan, which is usually the fastest way to repay your student debt. However, if you want a lower monthly payment or a longer repayment term, consider the following repayment plans:
- Graduated Repayment Plan: Start with small payments that gradually increase over 10 years.
- Extended Repayment Plan: Pay fixed or graduated payments over 25 years.
- Income-Contingent Repayment (ICR) plan: If you consolidate your PLUS loans, you can pay 20% of your discretionary income or what you’d pay on a 12-year plan, whichever is lower. Any balance after 25 years could be eligible for student loan forgiveness.
Alternatives to parent PLUS loans
While there are many benefits to parent PLUS loans, they might not be the best option for your family’s needs. For example, you might find a better interest rate with a private parent loan vs. a parent PLUS loan.
Keep in mind that private loans don’t generally provide the same benefits as federal loans, like flexible repayment plans and student loan forgiveness options.
Instead of borrowing, you could also help your child research full-ride scholarships or encourage them to apply to a no-loan college.
Frequently asked questions
A parent PLUS loan allows you to borrow up to the full cost of your child’s school. However, any financial aid your child will receive reduces the amount you can borrow.
Yes, there are multiple options for pursuing parent PLUS loan forgiveness. However, some programs require extra steps, such as consolidating your PLUS loans for PSLF.
In addition, you can put your direct parent PLUS loan into Income-Contingent Repayment (ICR), which will result in forgiveness after 25 years. (Note that you might need to pay taxes on the forgiven amount).
Each option comes with pros and cons. If you have good to excellent credit, you might score a lower student loan interest rate with a private parent loan. A lower rate can help make a significant difference over the long run. Plus, some college loans for parents offer member perks and rewards for parent college loans.
However, federal parent PLUS loans offer a standard fixed interest rate, regardless of credit score or income level. These loans also come with federal benefits and protections, like deferment, forbearance and Income-Contingent Repayment (ICR).
And if you wish to pursue a student loan forgiveness program, PLUS loans are often the way to go, since federal loans have access to many additional forgiveness options.
Technically, you can’t transfer any federal student loan to another person. However, there’s a workaround to transferring your parent PLUS loan to the student: Your child can refinance the debt in their name with a private lender.
While transferring your debt to your child can help during financial hardship, it’s not always the best move. When you refinance federal loans, you lose access to government assistance like forbearance, deferment, Income-Contingent Repayment and student loan forgiveness.
However, it’s worth discussing payment options with your child if they now earn a decent salary and you’re struggling with repayments.