If you’ve committed to helping your child pay for college, you might be wondering where the money is going to come from. Like a lot of other parents, you’ve probably scrutinized your savings account hoping to find some hidden funds you forgot about.
But if you're coming up short, you might be wondering if applying for a Parent PLUS loan is right for you.
Let's take a look at what a Parent PLUS loan is and how it works.
What is a Parent PLUS Loan?
A Parent PLUS Loan is a federal student loan offered by the U.S. Department of Education (DOE) under the Direct Loan Program.
You may qualify for this loan if your dependent child is an undergraduate student and enrolled at least half-time in an eligible program. If you qualify, a line of credit goes directly to you, not your child. That means you are responsible for paying back the loan.
The funds from the loan are designed to help you pay for college, or trade and career school costs, that are not covered by other financial aid.
The Parent PLUS loan comes with a fixed interest rate of 7% and an origination fee of 4.624% (as of June 2018).
How much do you get from the Parent PLUS loan?
The maximum Parent PLUS loan amount you can borrow is equal to the cost of attendance (which is determined by the school), minus any other financial assistance your child received.
When you are presented with the loan amount you're eligible for, just remember you have the option to borrow all, some, or none of it.
It's a good idea to be conservative with this decision. Your retirement account will thank you in the long run.
See also: Are Parent PLUS Loans a Good Deal?
How long are Parent PLUS loans for?
You are eligible to borrow funds for a Parent PLUS loan for the entire time your student is in college.
With that being said, you will need to fill out and submit the Parent PLUS loan application each school year.
Can Parent PLUS loans be forgiven?
Under certain circumstances, the federal government may discharge, forgive, or cancel your federal loan.
The Parent PLUS loan can be discharged if:
- You or child die
- You become totally and permanently disabled, or
- Your loan is discharged in bankruptcy, although you will have to meet certain criteria to have the loan included in a bankruptcy.
There are also school-specific circumstances that could make you eligible to have your Parent PLUS loan discharged, including:
- If your child could not complete their program because the school closed
- If your eligibility to receive the loan was falsely certified by the school or falsely certified through identity theft, or
- If your child withdrew from school, but the school didn’t pay a refund of your own money that it was required to pay
If you have experienced any of these circumstances, contact your loan servicer for more information.
Is the Parent PLUS loan subsidized?
No, Parent PLUS loans are not subsidized. That means you'll be responsible for paying all of the interest on the loan from the date the funds are disbursed.
How do you apply for a Parent PLUS loan?
If you are interested in applying for a Parent PLUS loan, the first thing you (and your child) need to do is complete the FAFSA.
Once you’ve completed and filed the FAFSA, you will hear directly from the school’s financial aid office. They will provide you with further instructions on how to request a Parent PLUS loan.
Some schools require you to request a Parent PLUS loan at StudentLoans.gov, while others will have you deal directly with the college.
If you are offered a loan, you will be required to sign a Direct PLUS Loan Mastery Promissory Note, which explains the terms and conditions of your loan. It also acts as the legal agreement to repay your loan.
It’s important to note that the process can vary from school to school, so pay attention to the instructions you receive from each institution.
What are the eligibility requirements for a Parent PLUS loan?
To receive a Parent PLUS loan, you must have a dependent child who is an undergraduate student enrolled at least half-time at an eligible school. The government defines parent as the biological or adoptive parent (or, in some cases, the stepparent).
You may be eligible for a Parent PLUS loan if you meet the following requirements.
- You're a U.S. citizen or eligible noncitizen.
- You're able to demonstrate financial need.
- You're not in default on any federal education loans.
- You're able to meet other general eligibility requirements.
Since you are borrowing on behalf of your child, they must also meet these requirements.
Additionally, you cannot have an adverse credit history. When you apply for a Parent PLUS loan, a credit check will be performed. If your credit comes back with a negative history, your loan application may be denied.
But, if this happens, you do have options. If you have extenuating circumstances that you can document, you may be able to appeal the decision.
Also, if you obtain an endorser who does not have an adverse credit history, you may be able to qualify for a Parent PLUS loan. An endorser takes a similar role as a cosigner, which means, they are responsible for paying back the loan if you do not repay it.
If you choose either of these options, you may also need to complete credit counseling on the StudenLoans.gov website.
What are the interest rates?
The current interest rate on a Parent PLUS loan is 7%. Interest rates for this loan are fixed for the life of the loan, which is both good and bad news.
The good news: you don’t have to worry about your monthly payment fluctuating based on the current interest rate.
The bad news: the rate on a Parent PLUS loan may be higher than current rates with other private lenders who offer private student loans. In fact, several private lenders are offering parent loans closer to 6% for borrowers who have good credit histories.
What are alternatives to Parent PLUS loans?
Parent PLUS loans are one option available to help cover the costs of college. But they aren't the only option.
If your child has exhausted all of their other federal financial aid and scholarship opportunities you may want to consider a private student loan. Not only do private student loans offer competitive (and often lower) interest rates, their payment plans may be more flexible.
Take some time to shop around and look at various rates and fees. Private lenders have a variety of loan options available to fit your personal needs.
Not sure where to start? Take a look at our preferred picks for the best lenders for private student and parent loans.