By T.J. Porter, WCI Contributor
It’s no secret that a college education is expensive, especially if you’re planning to extend your stay in higher education by attending medical school. Given the cost, many students turn to loans to help fund their education. Often, parents want to help their children afford the cost of school. The Parent PLUS loan program gives parents a way to borrow money to help pay for their children’s college educations.
Here's what to know about Parent PLUS Loans.
What Is a Parent PLUS Loan?
A Parent PLUS loan is a type of federal student loan that parents can apply for to pay for their children’s education. Rather than the student borrowing money, their parent or legal guardian gets the loan and uses the funds to cover the child’s education costs.
Only legal guardians and parents can apply for Parent PLUS loans. Grandparents, aunts and uncles, or other family members cannot apply for a Parent PLUS loan to help someone pay for college.
How a Parent PLUS Loan Works
Parent PLUS loans are a type of federal direct student loan. They come from the US government, and many of the same rules that apply to other student loans apply to Parent PLUS loans. For example, parents can apply for loans up to the child’s cost of attendance, minus any aid they’ve received.
If the application is approved, the government disburses the money directly to the child’s school.
The loans come with fixed interest rates but are not subsidized, which means that interest will start to accrue as soon as the government funds the loan.
It’s important to note that these loans are not cosigned loans. They are solely in the parent or guardian’s name. That means that the child will have no legal obligation to help repay the loan. Eligibility is also based solely on the applicant’s credit and income.
How to Apply for a Parent PLUS Loan
Before you apply for a Parent PLUS loan, you should confirm that you’re eligible for one. To qualify, you must meet three requirements:
- Be the biological or adoptive parent of a dependent undergraduate student enrolled at least half-time at an eligible school.
- Not have an adverse credit history, such as:
- Accounts with balances exceeding $2,085 that are 90 days delinquent or more.
- A default, bankruptcy, repossession, or foreclosure in the last five years.
- A charge-off/write-off of federal student debt, wage garnishment, or tax lien in the last five years.
- This requirement can be waived with an endorser or a letter proving extenuating circumstances.
- Meet the general eligibility requirements for federal student aid, such as
- Being a citizen or green card holder or
- Having a valid Social Security number.
To apply for a Parent PLUS loan, you’ll typically fill out the online application at studentaid.gov. Some schools may have a different application process, but the website will let you know if you need to do anything differently.
Before you apply, ensure that you and your child have filled out and submitted the Free Application for Federal Student Aid (FAFSA). If you’re approved, you’ll need to sign a Master Promissory Note that outlines the terms of the loan. The MPN will include information about the interest rate and origination fee of the loan.
More information here:
How to Repay a Parent PLUS Loan
If you’re approved for a Parent PLUS loan, the government will send the funds directly to your student’s college to pay for tuition and other costs. Repayment typically begins immediately, so you can expect to get a bill from the government relatively shortly after the loan gets funded. If you don’t want to start payment immediately, you can ask for a deferment. This will pause payments until six months after your student leaves school or drops below half-time enrollment. Remember, Parent PLUS loans are not subsidized, so interest will accrue during the deferment.
When you begin payment, you can choose from a few different repayment plans.
- Standard repayment plan: Fixed payments with a repayment term of 10 years.
- Graduated repayment plan: Payments start small and grow over time with a repayment term of 10 years.
- Extended repayment plan: Fixed or graduated payments with a repayment term of up to 25 years. This is only available for balances exceeding $30,000.
Parents can become eligible for an income-driven repayment plan (based on the parent's income) by consolidating their Parent PLUS loans into a direct consolidation loan.
More information here:
Parent Loan Forgiveness
Parent loans, like other federal student loans, are eligible for various loan forgiveness programs. After qualifying for forgiveness, any remaining balance is eliminated, meaning you no longer have to make payments.
To be eligible for forgiveness, you’ll need to consolidate your loans so you can use an income-driven repayment plan. Once you’ve done so, you can qualify for two forms of loan forgiveness.
- Income driven repayment forgiveness: Any remaining balance is forgiven after 20-25 years of payments depending on the IDR plan (PAYE vs REPAYE) and the type of schooling (undergrad vs grad school)
- Public Service Loan Forgiveness (PSLF): Any remaining balance is forgiven after 10 years of payments. To be eligible, the parent must work for a qualifying employer, typically the government or a nonprofit.
- Death forgiveness: Student loans go away at death. While that doesn't happen very often for loans where the student is the borrower, it can be significantly more common when a parent that may be 30-40+ years older is the borrower.
You may also be able to get loans discharged or forgiven in other situations. For example, if the school closes while the student is enrolled or you become totally disabled or die, the loan will be discharged.
Parent PLUS Loans vs. Private Student Loans
Parent PLUS loans are one option for parents who want to help their children attend college, but they’re not the only option. Private student lenders will let parents borrow money to pay for educational expenses. There are pros and cons to each type of loan.
- Eligibility: Private lenders tend to have stricter credit and income requirements than the government.
- Fees: Parent PLUS loans come with an origination fee that is usually between 4%-5% of the loan amount. Some private student lenders do not charge this fee, which can be a big saving.
- Interest rates: Parent PLUS loans have fixed interest rates. Private lenders may offer fixed or variable rates. Which loan has a lower rate will depend on the lender and your credit rating.
- Repayment rules: Private lenders usually don’t offer deferment and won’t let you consolidate to a loan type that offers income-based repayment plans.
Often, if you have great credit and a strong income, you can get a cheaper loan from private lenders. People with less than excellent credit may be better off with a Parent PLUS loan.
Should You Get a Parent PLUS Loan?
Many parents want to help their kids pay for college, so it’s understandable to want to do anything you can—including applying for loans—to help with education costs. However, it’s important to think carefully before you apply.
Students can usually get better loans than parents, including student loans with subsidized interest. If they can get a large amount in subsidized loans, you might consider offering to help with paying those loans rather than applying for loans yourself. Also consider other options for helping to pay for college, such as helping your child apply for scholarships and grants or encouraging them to get a summer job.
If you’ve exhausted other options, make sure that your financial ducks are in a row and that this new loan won’t significantly impact your progress toward other goals, such as retirement. Once you’ve taken the time to think about how the loan will impact your finances, you can apply.
But keep in mind what Dr. Jim Dahle has said about Parent PLUS Loans:
“I don't really like Parent PLUS Loans. I don't even like the idea of a parent loan at all. I think if anyone is going to borrow for a student's education, it should be the student. When you borrow for something, by definition, it means you cannot afford it. If you could, you'd just buy it, at least if it costs 4% upfront plus 7% a year to get the money. I'm all for saving for your child's education. I think it's great that you want to help your child. But you should help them from a position of strength. A parent that borrows for their child's schooling almost surely does not have their retirement on track. You're not doing your child a favor by paying for their education and then having them worry about you for the last 30 years of your life.”
Parent PLUS Loan FAQs
Can You Refinance a Parent PLUS Loan?
Yes, it is possible to refinance a Parent PLUS loan using a direct consolidation loan.
Can Parent PLUS Loans Be Forgiven?
Parent PLUS loans aren’t directly eligible for forgiveness, but you can consolidate them through direct consolidation loans. Those loans are eligible for forgiveness.
How Much Does a Parent PLUS Loan Cost?
Parent PLUS loans charge an upfront fee and have a fixed rate of interest. The fees and interest rate are set by the government once each year. For loans disbursed between October 1, 2022, and September 30, 2023, the fee is 4.228%. For loans disbursed between July 1, 2022, and June 30, 2023, the interest rate is 7.54%.
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