Everything You Need to Know About Parent PLUS Loans

The Parent PLUS loan program was launched in 1980 through the Higher Education Act, giving high-asset families a bit of liquidity to cover their Expected Family Contribution (EFC). Since then, the program has expanded to cover other demographics, providing a wider audience with federally-sponsored college financing. 

If you’re considering borrowing a Parent PLUS loan to cover the cost of your child’s education, there are several factors to consider. This guide explains everything you need to know, from the eligibility criteria, to the interest rates, to how to navigate repayment.

Jump Ahead > Eligibility Criteria • Borrowing Process • Loan Repayment

What is a Parent PLUS Loan?

A Parent PLUS Loan is a type of Direct loan provided by the U.S. Department of Education that allows eligible parents to borrow money to pay for their child’s education.

Who is Eligible for a Parent PLUS Loan?

To be eligible for a Parent PLUS loan, you must:

• Be eligible under the general requirements for federal student aid
• Be a U.S. citizen or eligible non-citizen
• Be the biological or adoptive parent (or sometimes stepparent) of an undergraduate, dependent student who is enrolled at least half-time at an eligible school
• Have a decent credit history (although there are other additional requirements you can meet to get around this)

Note that grandparents and legal guardians are not eligible for Parent PLUS loans unless they have adopted the student.

The student you borrow for must also:

• Be a U.S. citizen or eligible non-citizen
• Not have any previous student loan defaults on their record that haven’t been resolved

Credit Requirements

When you borrow a Parent PLUS loan, your credit history will be checked. To pass, you must not have any of the following on your record within the 2 years prior to applying:

• One or more debts that are more than 90 days overdue that total more than $2,085
• A collection or charge off

You must also not have any of the following within the 5 years prior to applying:

• A loan default
• A discharge of debts via bankruptcy
• A foreclosure
• A repossession
• A tax lien
• Any wage garnishment
• A write-off of a federal student aid debt

Can You Get a Parent Plus Loan with Bad Credit?

If you are concerned about meeting the credit requirements of a Parent PLUS loan, there are some ways to get around it:

Prove extenuating circumstances. If you believe your credit is insufficient due to extenuating circumstances, you can submit a document to the U.S. Department of Education. The document will require you to detail the circumstances leading to poor credit history. For example, situations of divorce or excessive medical bills may contribute to extenuating circumstances. While this doesn’t guarantee you eligibility, it is always worth a shot.

Obtain an endorser. An endorser is an individual who agrees to sign onto the loan alongside you, taking legal responsibility for the loan just like you. In the realm of private student loans, this is called a cosigner.

Adding an endorser to the loan can help you qualify if your credit is not as established as it could be. Note that the endorser cannot be the child you are borrowing for. 

Borrowing a Parent PLUS Loan

To borrow a Parent PLUS loan, complete the online application. Note that the application will instruct you to complete the FAFSA prior to completing the Parent PLUS loan application.

How Much Can I Borrow?

Parent PLUS loans can cover up to the cost of attendance minus other aid your child receives. For example, if the cost of attendance at your child’s school is $30,000, and they received $10,000 in additional aid, you may be eligible to borrow up to $20,000 in a Parent PLUS loan.

Note that you do not have to accept the full amount given. For example, if offered $20,000, you can choose to only borrow $15,000.

What Are the Interest Rates?

Parent PLUS loan rates change annually. For loans disbursed on or after July 1, 2022 and before July 1, 2023, the interest rate is 7.54%. This interest rate is fixed, meaning it will remain the same throughout the life of the loan.

Are There Fees?

Parent PLUS loans do come with a loan fee. This loan fee is a percentage of the amount being borrowed and is deducted from each disbursement over the life of the loan. While the loan fee can and does change, it has remained at 4.228% the last two academic years.

So, for example, if you borrow $10,000, $422.80 will be deducted due to the loan fee, and $9,577.20 will be disbursed to the school. That said, you will still be responsible for repaying the entire $10,000.

Parent PLUS Loan Repayment

Repaying a Parent PLUS loan is the legal responsibility of the borrower – the parent. While you may ask your child to contribute to repayment, it is ultimately your responsibility. Before borrowing a Parent PLUS loan, take the time to understand what that means for you in terms of repayment and to discuss repayment with your child.

Do I Have to Make Payments While My Child is Still in School?

When borrowing a Parent PLUS loan, you will have the option to request a deferment. This deferment would excuse you from making payments while your child is enrolled and for an additional six months after your child graduates.

However, if a deferment is not requested, you will be expected to make payments immediately after the loan is disbursed. 

Regardless of whether you decide to make payments while your child is in school, interest will continue to accrue on the loan.

What Repayment Options are Available?

Parent PLUS loans have a few repayment options:

• Standard 10-Year Repayment Plan: You make equal monthly payments for 10 years. With a standard repayment plan, you’ll pay less in interest and pay off your loans faster than you would on other plans.
• Graduate Repayment Plan: You make small monthly payments over the course of 25 years, with the monthly payment increasing every two years. Graduated repayment plan would result in smaller monthly payments upfront that gradually increase over time.
• Extended Repayment Plan: You make equal monthly payments for the entire 25-year repayment period. With the Extended Repayment Plan, you will have smaller monthly payments, but you will pay more over the life of the loan.
• Income-Contingent Repayment Plan: You make payments that are set based on your income (typically 10-20% of your income). With an income-contingent repayment plan, you will likely pay more over the life of the loan in comparison to the standard repayment plan. Note that you will only qualify for income-contingent repayment if you consolidate your Parent PLUS loans.

What If I Can’t Repay My Parent PLUS Loan?

If you’re struggling to make payments on your Parent PLUS loan, there are a few things you can do:

Refinance the Parent PLUS loan(s) to a private student loan. By refinancing through a private lender, you may be able to score a lower interest rate or longer repayment period, which could in turn, lower your monthly payment.

Switch repayment plans. If you are currently on the standard repayment plan, consider switching to the extended repayment plan. By doing so, your monthly payments will decrease, which may make it more manageable to repay.

Request a deferment or forbearance. Deferment and forbearance both allow you to temporarily postpone payments. You will need to be able to prove financial or other hardship, however, to qualify. Additionally, interest will still accrue during these periods, which could increase your monthly payment after you return to repayment.

Before making any decision regarding your Parent PLUS loan(s), contact your loan servicer. They can help you determine the best course of action to remedy your situation.

Can I Transfer My Parent PLUS Loan to My Child?

Parent PLUS loans cannot be directly transferred to a child. However, you can have your child refinance the loan through a private lender to remove your name from the loan.

Are Parent PLUS Loans Eligible for Forgiveness?

Parent PLUS loans are eligible for a variety of student loan forgiveness programs, such as:

1. Income-Contingent Repayment Forgiveness
2. Public Service Loan Forgiveness
3. Military Forgiveness Programs
4. Federal Agency Employment Forgiveness Programs

Note that each student loan forgiveness program will have its own unique requirements. To ensure you are eligible for a certain forgiveness program, make sure to read its eligibility requirements carefully.

Final Thoughts from the Nest

A Parent PLUS loan is a great option for parents who want to help support their children through their education. Before agreeing to any loan, however, it’s a good practice to compare interest rates across all loans. In fact, you may be able to score an even lower interest rate with a private student loan.