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College  |  October 24, 2023  |  Lisa Litant

Parent PLUS Loans: Eligibility, interest rates, & more

What you'll learn

• Eligibility and requirements of a Parent PLUS Loan
• How to apply
• Understanding Parent PLUS Loan interest rates
• What repayment options are available

Has your child maxed out federal student loans, grants, and scholarships—and still needs more for college? One solution is the Parent PLUS Loan, a credit-based federal education loan provided directly to parents. Here are the pros and cons.

What is a Parent Plus Loan?

This loan (also known as a Direct PLUS Loan), issued by the federal government, lets parents of dependent students borrow funds to help pay for a student’s college or career school. (Note: Grandparents and legal guardians are not eligible to take out a Parent PLUS Loan unless they’ve legally adopted the student.)

Parent PLUS eligibility requirements

Parent requirements:

• You must be the biological or adoptive parent of a dependent undergraduate student enrolled at least half-time.
• You must be a U.S. citizen or eligible non-citizen. 
• You generally must meet minimal credit standards, and the student must meet general eligibility requirements for financial aid.
• Grandparents and legal guardians aren’t eligible to take out these loans unless they legally adopt the student. 

Student requirements:

• They must be a U.S. citizen or eligible non-citizen.
• They must not have previous student loan defaults that haven’t been resolved or consolidated into a federal direct loan.
• Male students who are citizens ages 18 to 25 need to register for the Selective Service System.  

How to apply for a Parent PLUS Loan

1. Start with the FAFSA®
   When you fill out the Free Application for Federal Student Aid (FAFSA®), one of the options offered for funding are Parent PLUS Loans. These loans are meant to supplement school, state, and other federal financial aid offered. One way in which these loans are different from their federal student loan counterparts is that a credit check is performed to determine any late payments and recent defaults in your credit history.
2. Apply online and download a promissory note
   You can usually apply online. You’ll also need to download and sign a Master Promissory Note (MPN), a legal document in which you promise to repay your loans (and any interest and fees). It also details the loan’s terms. If you have any questions on how to apply or sign the MPN, contact the school’s financial aid office.
3. Choose how much you want to borrow
   Parent PLUS Loans are awarded for up to the full cost of attendance minus other financial aid a student’s received. Funds are sent directly to the school. Refunds for amounts beyond what is owed to the school are sent to the parent or to the student with the parent’s permission.
   
   After you’ve submitted your application, your information will be sent from the federal government to your student’s school, which will confirm your eligibility and how much you can borrow.
   
   Note: You don’t have to borrow the full amount offered. For instance, you may decide to pay some of the money offered in the form of a Parent PLUS Loan with a combination of installment plans from the college, tax credits, student income, your own income, and/or private student loans. 

Parent PLUS Loan interest rates

The interest rate for Parent PLUS Loans first disbursed on or after July 1, 2023, and before July 1, 2024, is currently 8.05%. This rate is fixed for the life of the loan.^{footnote 2} There’s also a 4.228% fee for loans disbursed on or after October 1, 2020.  

• Interest rates and origination fees can change on July 1 each year. That means interest rates and fees could be different each year you borrow. Once issued, the interest rate is fixed and never changes. The only time it does is if you receive the 0.25 percent discount for enrolling in automatic monthly payments.
• Note: Private student loans may have a better interest rate than PLUS Loans if parents have excellent credit, so you should compare them.

While Parent PLUS Loan interest rates are higher than those for federal student loans, consider that the student loans are generally capped for all years of an undergraduate degree (see current limits). Parent PLUS Loans, however, are capped by the total cost of attendance minus other sources of financial aid.

Credit requirements for a Parent PLUS Loan

For two years before your credit is pulled: You can’t have an “adverse credit history,” including one or more debts that are more than 90 days overdue that total more than $2,085, or a collection or charge off.^{footnote 3} 

For five years before your credit is pulled: You can’t have a loan default, a discharge of debts in bankruptcy, foreclosure, repossession, tax lien, wage garnishment, or a write-off of a federal student aid debt. 

If you don’t have good credit

If your credit needs improvement, you may still be able to get a Parent PLUS Loan by providing documentation and getting approved because of the following:

• Adding an endorser: An endorser is the federal government’s term for a cosigner, a person who’s willing to be a co-borrower on the loan. This can allow the person whose credit might not be established yet or may not be as good to borrow the money.
• Extenuating circumstances: This refers to a reason why your credit report doesn’t accurately describe your true ability to repay the loan. Examples include a divorce decree showing you aren’t required to pay the debt or excessive medical bills that you can document. If you have debt that’s being paid, you’ll need to show proof you’ve been making payments for at least six months. 

No matter what the reason behind the extenuating circumstances, documenting any situation is important. And of course, make sure you can show how the situation has improved.

Pros and cons of having an endorser

Pros

• You’ll get the rest of the money needed for your student’s cost of attendance for that school year.
• You’ll have time to improve your credit before borrowing for future years.
• You may also be able to have them cosign a private student loan for your student (which may have a lower interest rate). If so, your student could remove the cosigner’s name from the private loan, provided the student meets the rules for cosigner release.

Cons of getting an endorser:

• You may not be able to afford the amount you are approved for.
• You’re asking another person to be responsible for the loan in addition to you. However, you can make a decision to prioritize paying off this loan first.
• Having enough income to afford repayment is not a requirement. Whether or not you are approved, especially with an endorser, has nothing to do with affordability. 

If you’re approved because of extenuating circumstances or because of an endorser, expect to complete PLUS Loan credit counseling. It usually takes 20 to 30 minutes total and must be completed in one sitting.

If you’re rejected for Parent PLUS Loans, your student may be eligible for more federal student loans at a lower interest rate. The only difference is it may not be for as much money, and your student could still have to find other methods for filling remaining financial aid gaps. 

Paying back Parent PLUS Loans 

One of the biggest perks to Parent PLUS loans is that some of the same repayment plans available on federal student loans also apply for these.

You can’t transfer repayment responsibility of Parent PLUS loans to the student. If the goal is to have the student ultimately be responsible for the debt, consider cosigning a private student loan for them. Most private student loans have a cosigner release where you can be removed after the student makes 12 to 24 on-time payments.

When repayment begins

Repayment begins 60 days after the final disbursement for that academic year. Disbursements are made based on school terms. (There are no prepayment penalties, so you can start paying back earlier, if you like.) Interest accrues (grows) while the student is in school, but you can choose to pay the interest as you borrow.

• You can request deferment for each academic year while your student is enrolled at least half time.
• When the student leaves school, you get a six-month grace period before payments begin. In other words, if a student graduates in May, the first payment on the Parent PLUS Loan would not be due until November.

Repayment plan options

• Income-contingent repayment plan (requires income verification): The payment can be higher than plans available to students BUT it still allows you to make lower monthly payments if you qualify. To qualify for the income-contingent plan, it’s best to consolidate Parent PLUS Loans to one federal direct loan after you finish all borrowing for your student or students.  
• A 10-year extended repayment plan or a Parent PLUS consolidation loan (income verification not required): Consolidation means you are combining all your loans into a single loan. Then, you can potentially choose a repayment plan for up to 30 years to keep payments low. While payments may be lower, keep in mind you’ll actually be paying more over the life of the loan if you extend the term. If you consolidate your loans, you can choose other plans for repayment, such as an income-driven plan. 
• Public Service Loan Forgiveness (PSLF): It may be possible to get some Parent PLUS Loans forgiven via the Public Service Loan Forgiveness—partial forgiveness based on working for specific public service employers in specific roles. To get an idea as to whether you could qualify, call the number on the PSLF employer certification form. It’s important to read up on loan forgiveness programs. They are by no means a guarantee! 

Remember, you can always repay student loans early without penalty, so it doesn’t hurt to choose a longer, more affordable repayment option and make extra payments. It’s very common for borrowers to send in just a few extra dollars monthly to reduce the balance and the interest charged. Ten dollars per month or more added to your monthly payment can reduce months to years off your total repayment time frame.  

Is a Parent PLUS Loan right for you?  

While a student should generally start with any available federal student loans, there are several reasons why you might choose a Parent PLUS Loan:

• Your student needs more money for school than they can receive from federal student loans.
• You have good credit.
• You’re willing to take on the financial responsibility of a loan rather than have it fall on your student.
• You can take advantage of some of the same benefits (including income-based repayment) as other federal student loans.

If any of these reasons fit your financial preferences, a Parent PLUS Loan might be a good addition to your family’s paying-for-college solution.