Parent PLUS Loans Guide

A parent PLUS loan can help fill any  gaps not covered by your child’s financial aid package. The government offers parent PLUS loans with fixed interest rates, flexible repayment options and even opportunities for student loan forgiveness.

But it’s important to weigh the pros and cons of a parent PLUS loan before applying. In some cases, a private parent loan might even be a better fit.

What is a parent PLUS Loan?

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

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.

If your child qualifies for financial aid, they can access a range of low-cost funding options, such as:

• Subsidized and unsubsidized student loans
• Pell Grants
• Work-study opportunities

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.