How Does a Parent PLUS Loan Work: A Comprehensive Guide

2023-09-03

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Are you a parent looking to help your child pursue higher education? If so, you may be considering taking out a Parent PLUS Loan. This federal loan program is designed to help parents cover the cost of their child's college education. In this comprehensive guide, we'll explain how a Parent PLUS Loan works, including its eligibility requirements, application process, and repayment options.

Parent PLUS Loans are available to parents of dependent undergraduate students enrolled at least half-time in a degree or certificate program at an eligible college or university. To be eligible, you must also meet certain creditworthiness requirements and pass a credit check. If you have an adverse credit history, you may still be able to get a Parent PLUS Loan, but you'll need to have a creditworthy cosigner.

Once you're approved for a Parent PLUS Loan, you'll need to complete the loan application process. This includes providing information about your income and assets, as well as the amount of money you want to borrow. The maximum amount you can borrow is the cost of attendance at your child's school, minus any other financial aid they receive.

How Does a Parent PLUS Loan Work

Federal loan program for parents.

Eligibility: Parents of dependent undergraduates.
Credit check: Required, cosigner if adverse credit.
Loan amount: Cost of attendance minus other aid.
Repayment: Begins 60 days after loan is fully disbursed.
Interest rate: Fixed, set each July 1.
Repayment terms: 10 years standard, extended options available.
Deferment and forbearance: Available under certain conditions.
Loan forgiveness: Available after 25 years of qualifying payments.

Parent PLUS Loans can be a helpful way to cover the cost of your child's education, but it's important to understand the terms and conditions of the loan before you apply.

Eligibility: Parents of Dependent Undergraduates

To be eligible for a Parent PLUS Loan, you must meet certain requirements, including:

Be the parent of a dependent undergraduate student.
This means that your child must be enrolled at least half-time in a degree or certificate program at an eligible college or university, and they must be claimed as a dependent on your federal income tax return.
Have good credit.
You will need to pass a credit check to get a Parent PLUS Loan. If you have an adverse credit history, you may still be able to get a loan, but you will need to have a creditworthy cosigner.
Not have defaulted on any federal student loans.
If you have defaulted on a federal student loan, you will not be eligible for a Parent PLUS Loan.
Be a U.S. citizen or eligible non-citizen.
You must be a U.S. citizen or eligible non-citizen to get a Parent PLUS Loan.

If you meet all of these requirements, you can apply for a Parent PLUS Loan through the Federal Student Aid website.

Credit check: Required, cosigner if adverse credit.

When you apply for a Parent PLUS Loan, the lender will conduct a credit check to assess your creditworthiness. This means that they will look at your credit history to see if you have any unpaid debts, late payments, or other negative marks on your credit report. If you have good credit, you are more likely to be approved for a Parent PLUS Loan and you may get a lower interest rate.

If you have an adverse credit history, you may still be able to get a Parent PLUS Loan, but you will need to have a creditworthy cosigner. A cosigner is someone who agrees to repay the loan if you are unable to do so. The cosigner must also pass a credit check.

If you are considering applying for a Parent PLUS Loan with a cosigner, it is important to talk to your cosigner about the risks and responsibilities involved. Make sure that they understand that they will be legally obligated to repay the loan if you default.

You can improve your chances of getting approved for a Parent PLUS Loan by:

Paying your bills on time.
Keeping your credit utilization low.
Disputing any errors on your credit report.
Building your credit history by using a credit card and paying it off in full each month.

If you have any questions about the credit check process or the requirements for a cosigner, you should contact your lender.

Loan amount: Cost of attendance minus other aid.

The maximum amount you can borrow with a Parent PLUS Loan is the cost of attendance at your child's school, minus any other financial aid they receive. This includes:

Tuition and fees.
Room and board.
Books and supplies.
Transportation.
Other expenses related to your child's education.

To determine the cost of attendance, you will need to contact the financial aid office at your child's school. They will be able to provide you with a detailed list of all the costs that are included in the cost of attendance.

Once you know the cost of attendance, you can subtract any other financial aid your child is receiving, such as scholarships, grants, and work-study. The remaining amount is the maximum amount you can borrow with a Parent PLUS Loan.

It is important to note that you are not required to borrow the full amount of the Parent PLUS Loan. You can choose to borrow less than the maximum amount if you do not need the full amount to cover your child's expenses.

Repayment: Begins 60 days after loan is fully disbursed.

You will begin repaying your Parent PLUS Loan 60 days after the loan is fully disbursed. This means that you will not have to make any payments while your child is in school and for a short grace period after they graduate or leave school.

Standard repayment plan. This is the most common repayment plan. Under this plan, you will make fixed monthly payments for 10 years.
Graduated repayment plan. Under this plan, your monthly payments will start out low and gradually increase over time. This plan may be a good option if you have a limited budget.
Extended repayment plan. This plan allows you to extend your repayment period to up to 25 years. This may be a good option if you have a high amount of debt or if you are struggling to make your monthly payments.
Income-driven repayment plan. Under this plan, your monthly payments will be based on your income and family size. This may be a good option if you have a low income or if you have a large amount of debt.

You can choose the repayment plan that is best for your financial situation. You can also change your repayment plan at any time if your financial situation changes.

It is important to make your Parent PLUS Loan payments on time and in full each month. If you miss payments, you may be charged late fees and your credit score may be damaged. You may also be at risk of default, which can have serious consequences.

Interest rate: Fixed, set each July 1.

The interest rate on Parent PLUS Loans is fixed, which means that it will not change over the life of the loan. The interest rate is set each July 1, and it is based on the 10-year Treasury note rate plus a fixed margin.

For loans disbursed on or after July 1, 2023, the interest rate is 7.54%.
For loans disbursed before July 1, 2023, the interest rate will vary depending on when the loan was disbursed.

You can find the interest rate for your Parent PLUS Loan on your loan disclosure statement.

The interest rate on Parent PLUS Loans is higher than the interest rate on federal student loans for undergraduate students. This is because Parent PLUS Loans are considered to be a higher-risk loan.

You can reduce the amount of interest you pay on your Parent PLUS Loan by making extra payments or by choosing a shorter repayment period.

Repayment terms: 10 years standard, extended options available.

The standard repayment term for Parent PLUS Loans is 10 years. This means that you will make fixed monthly payments for 10 years until the loan is paid off.

You may be eligible for extended repayment terms if you meet certain requirements. Extended repayment terms allow you to extend your repayment period to up to 25 years.
To be eligible for extended repayment terms, you must:
Have a Direct PLUS Loan.
Have a total loan debt of $30,000 or more.
Be unable to repay your loan under the standard repayment plan.

If you are approved for extended repayment terms, you will make lower monthly payments, but you will pay more interest over the life of the loan.

You can also choose to make extra payments on your Parent PLUS Loan at any time. This will help you pay down your loan faster and save money on interest.

Deferment and forbearance: Available under certain conditions.

Deferment and forbearance are two options that may be available to you if you are having difficulty making your Parent PLUS Loan payments.

Deferment allows you to temporarily postpone making payments on your loan. You may be eligible for deferment if you are:

Enrolled at least half-time in a qualified school.
Unemployed or experiencing economic hardship.
Serving in the military.
Experiencing other qualifying circumstances.

Forbearance allows you to temporarily reduce or suspend your loan payments. You may be eligible for forbearance if you are:

Experiencing a temporary financial hardship.
Unable to find full-time employment.
Experiencing a medical emergency.
Experiencing other qualifying circumstances.

If you are considering deferment or forbearance, you should contact your loan servicer to learn more about your options and to apply for deferment or forbearance.

It is important to note that interest continues to accrue on your loan during deferment and forbearance. This means that your loan balance will increase during this time.

Loan forgiveness: Available after 25 years of qualifying payments.

Parent PLUS Loans are eligible for loan forgiveness after 25 years of qualifying payments under the Public Service Loan Forgiveness (PSLF) program. To be eligible for PSLF, you must:

Be employed full-time by a public service organization.
Make 120 qualifying payments on your loan.
Have Direct PLUS Loans.

Public service organizations include:

Government agencies at the federal, state, or local level.
Nonprofit organizations that provide public services.
Schools and other educational institutions.
Public hospitals and other healthcare providers.
Certain other non-profit organizations that provide qualifying public services.

If you meet all of the eligibility requirements, you can apply for PSLF through the Federal Student Aid website. Once your application is approved, your remaining loan balance will be forgiven.

It is important to note that Parent PLUS Loans are not eligible for forgiveness under the standard 10-year forgiveness program for federal student loans.

FAQ

Have questions about Parent PLUS Loans? Here are some frequently asked questions and answers to help you understand how they work:

Question 1: What is a Parent PLUS Loan?
Answer 1: A Parent PLUS Loan is a federal loan that parents can take out to help pay for their child's education.

Question 2: Who is eligible for a Parent PLUS Loan?
Answer 2: To be eligible for a Parent PLUS Loan, you must be the parent of a dependent undergraduate student who is enrolled at least half-time in a degree or certificate program at an eligible college or university.

Question 3: What is the maximum amount I can borrow with a Parent PLUS Loan?
Answer 3: The maximum amount you can borrow with a Parent PLUS Loan is the cost of attendance at your child's school, minus any other financial aid they receive.

Question 4: What is the interest rate on Parent PLUS Loans?
Answer 4: The interest rate on Parent PLUS Loans is fixed, and it is set each July 1. For loans disbursed on or after July 1, 2023, the interest rate is 7.54%.

Question 5: What are the repayment terms for Parent PLUS Loans?
Answer 5: The standard repayment term for Parent PLUS Loans is 10 years. However, you may be eligible for extended repayment terms if you meet certain requirements.

Question 6: Can I get a Parent PLUS Loan forgiven?
Answer 6: Parent PLUS Loans are eligible for loan forgiveness after 25 years of qualifying payments under the Public Service Loan Forgiveness (PSLF) program.

Question 7: What if I have more questions about Parent PLUS Loans?
Answer 7: If you have more questions about Parent PLUS Loans, you can contact your loan servicer or visit the Federal Student Aid website.

Remember, Parent PLUS Loans are a type of federal student loan, and they are subject to the same rules and regulations as other federal student loans. It is important to understand the terms and conditions of the loan before you apply.

Now that you know more about Parent PLUS Loans, here are some tips to help you make the most of them:

Tips

Here are some practical tips to help you make the most of Parent PLUS Loans:

Tip 1: Shop around for the best interest rate.
Interest rates on Parent PLUS Loans can vary depending on the lender. Be sure to shop around and compare interest rates before you apply for a loan.

Tip 2: Consider a cosigner.
If you have a good credit history, you may be able to get a lower interest rate by having a creditworthy cosigner on your loan.

Tip 3: Make extra payments when you can.
Making extra payments on your Parent PLUS Loan will help you pay down your loan faster and save money on interest.

Tip 4: Explore repayment options.
There are a variety of repayment options available for Parent PLUS Loans. Be sure to explore all of your options and choose the repayment plan that is best for your financial situation.

By following these tips, you can make the most of Parent PLUS Loans and help your child get the education they need.

Conclusion

Parent PLUS Loans can be a helpful way to cover the cost of your child's education. However, it is important to understand the terms and conditions of the loan before you apply.

Here are some key points to remember:

Parent PLUS Loans are available to parents of dependent undergraduate students.
You must have good credit to qualify for a Parent PLUS Loan.
The maximum amount you can borrow is the cost of attendance at your child's school, minus any other financial aid they receive.
The interest rate on Parent PLUS Loans is fixed, and it is set each July 1.
The standard repayment term for Parent PLUS Loans is 10 years, but you may be eligible for extended repayment terms.
Parent PLUS Loans are eligible for loan forgiveness after 25 years of qualifying payments under the Public Service Loan Forgiveness (PSLF) program.

If you are considering taking out a Parent PLUS Loan, be sure to weigh the pros and cons carefully. Parent PLUS Loans can be a helpful way to finance your child's education, but they are also a significant financial obligation.

If you have any questions about Parent PLUS Loans, you can contact your loan servicer or visit the Federal Student Aid website.