Parent PLUS Loans: A Guide for Parents of College Students

If you are a parent of a college student who needs financial aid, you may have heard of Parent PLUS loans. These are federal loans that allow parents to borrow money to cover the cost of their child’s education. But what exactly are Parent PLUS loans and how do they work? And what are the benefits and drawbacks of taking out these loans? In this article, we will answer these questions and more, and provide you with a guide on how to apply, repay, and lower your Parent PLUS loan costs.

What are Parent PLUS loans and how do they work?

Parent PLUS loans are part of the Direct Loan program administered by the U.S. Department of Education. They are available to parents of dependent undergraduate students who are enrolled at least half-time in an eligible school. Unlike other federal student loans, Parent PLUS loans are not based on financial need, but on creditworthiness. This means that parents must have a good credit history and not have an adverse credit history (such as bankruptcy, foreclosure, or default) to qualify.

Parent PLUS loans can be used to pay for any education-related expenses that are not covered by other financial aid, such as tuition, fees, room and board, books, supplies, transportation, and personal expenses. The maximum amount that parents can borrow is the cost of attendance (COA) minus any other financial aid received by the student. The COA is determined by the school and includes both direct costs (such as tuition and fees) and indirect costs (such as living expenses).

Parent PLUS loans have a fixed interest rate that is set by Congress each year. For the 2022-2023 academic year, the interest rate is 6.28%. Parents also have to pay a loan fee that is deducted from each disbursement. For the 2022-2023 academic year, the loan fee is 4.228%. The interest rate and loan fee may change in future years.

Parent PLUS loans are disbursed directly to the school in at least two installments, usually at the beginning of each semester or term. The school will first use the funds to pay for any outstanding charges on the student’s account, such as tuition and fees. Any remaining funds will be refunded to either the parent or the student, depending on what the parent authorizes on the application.

Who is eligible for Parent PLUS loans and what are the requirements?

To be eligible for Parent PLUS loans, parents must meet the following requirements:

• Be a U.S. citizen or eligible noncitizen
• Have a valid Social Security number
• Not be in default on any federal student loans or owe an overpayment on any federal education grants
• Have a good credit history or obtain an endorser (a co-signer) who does
• Be the biological or adoptive parent (or in some cases, stepparent) of a dependent undergraduate student who is enrolled at least half-time in an eligible school
• Complete the Free Application for Federal Student Aid (FAFSA) for their child

The student must also meet certain eligibility criteria, such as:

• Be a U.S. citizen or eligible noncitizen
• Have a valid Social Security number
• Be enrolled at least half-time in an eligible degree or certificate program at an eligible school
• Maintain satisfactory academic progress in their course of study
• Not be in default on any federal student loans or owe an overpayment on any federal education grants
• Register with Selective Service if required

What are the benefits and drawbacks of Parent PLUS loans?

Parent PLUS loans have some advantages and disadvantages that parents should consider before applying. Some of the benefits include:

• They can help cover any gap in funding that other financial aid does not cover
• They have a fixed interest rate that is lower than most private student loans
• They have flexible repayment options that allow parents to choose from several plans based on their income and preferences
• They have deferment and forbearance options that allow parents to temporarily postpone or reduce their payments in case of financial hardship or other circumstances
• They have forgiveness options that allow parents to have their remaining balance forgiven in certain situations, such as death, disability, or public service

Some of the drawbacks include:

• They require a credit check and may be denied if parents have an adverse credit history
• They have a high loan fee that reduces the amount of money available for education expenses
• They accrue interest from the date of disbursement until they are paid off, which increases the total cost of borrowing
• They are solely the responsibility of the parent borrower and cannot be transferred to the student or anyone else
• They may affect the parent’s ability to borrow for other purposes, such as a mortgage or a car loan

How to apply for Parent PLUS loans

To apply for Parent PLUS loans, parents need to follow these steps:

1. Complete the FAFSA for their child at https://studentaid.gov/h/apply-for-aid/fafsa. This will determine their child’s eligibility for other types of federal student aid, such as grants, work-study, and subsidized and unsubsidized loans.
2. Log in to https://studentaid.gov with their own FSA ID (a username and password that serves as their electronic signature). If they do not have an FSA ID yet, they can create one at https://studentaid.gov/fsa-id/create-account/launch.
3. Select “Apply for a Direct PLUS Loan” from the menu and choose “Direct PLUS Loan Application for Parents”. This will take them to an online application where they will provide information such as their personal details, school information, loan amount requested, credit authorization, borrower rights and responsibilities, etc.
4. Submit the application and wait for a credit decision. If approved, they will receive a Direct PLUS Loan Disclosure Statement that shows them the terms and conditions of their loan. If denied, they will receive an explanation of why they were denied and what options they have to appeal or obtain an endorser.
5. Complete a Master Promissory Note (MPN) at https://studentaid.gov/mpn/parentplus/landing. This is a legal document that binds them to repay their loan along with any interest and fees. They will need their FSA ID to sign it electronically.
6. Complete a PLUS Credit Counseling session at https://studentaid.gov/app/counselingInstructions.action?counselingType=plus if required. This is an online course that explains their rights and responsibilities as a borrower and helps them understand their loan terms and repayment options.
7. Check with their child’s school’s financial aid office to confirm that they have completed all the necessary steps and documents to receive their loan funds.

How to repay Parent PLUS loans

Parent PLUS loans enter repayment once they are fully disbursed, meaning that there is no grace period like other federal student loans. However, parents can request a deferment while their child is enrolled at least half-time and for an additional six months after their child graduates, leaves school, or drops below half-time enrollment. During deferment, interest will continue to accrue on their loan but they do not have to make any payments.

Parents can also request a forbearance if they are experiencing financial difficulty or other circumstances that prevent them from making their payments. Forbearance allows them to temporarily stop or reduce their payments for up to 12 months at a time. Interest will also continue to accrue during forbearance.

Parents can choose from several repayment options for their Parent PLUS loans:

• Standard Repayment Plan: This plan requires them to pay a fixed amount each month until their loan is paid off within 10 years (or up to 30 years if they consolidate their loan). This plan has the lowest total interest cost but also has higher monthly payments than other plans.
• Graduated Repayment Plan: This plan starts with lower monthly payments that increase every two years until their loan is paid off within 10 years (or up to 30 years if they consolidate their loan). This plan has a higher total interest cost than the standard plan but may suit parents who expect their income to increase over time.
• Extended Repayment Plan: This plan allows them to pay either a fixed or graduated amount each month until their loan is paid off within 25 years (or up to 30 years if they consolidate their loan). This plan has a higher total interest cost than both the standard and graduated plans but also has lower monthly payments than those plans.
• Income-Contingent Repayment Plan (ICR): This plan calculates their monthly payment based on their income, family size, and loan balance. Their payment will be the lesser of 20% of their discretionary income or what they would pay under a fixed 12-year plan. Their loan will be forgiven after 25 years of qualifying payments. This plan has the highest total interest cost but also has the lowest monthly payments for some parents. However, they will have to pay income tax on any forgiven amount.
• Income-Driven Repayment Plans (IDR): These plans are not available for Parent PLUS loans unless they consolidate their loan with a Direct Consolidation Loan. If they do so, they can choose from three IDR plans: Income-Based Repayment (IBR), Pay As You Earn (PAYE), or Revised Pay As You Earn (REPAYE). These plans calculate their monthly payment based on their income and family size and forgive their remaining balance after 20 or 25 years of qualifying payments. These plans also have low monthly payments for some parents but also have high total interest costs and tax implications.

Parents can change their repayment plan at any time by contacting their loan servicer. They can also use the Loan Simulator tool at https://studentaid.gov/loan-simulator/ to compare different repayment options and see how they affect their monthly payments and total interest costs.

How to lower your Parent PLUS loan costs

Parent PLUS loans can be expensive to borrow and repay, especially if they have a large loan balance and a high interest rate. However, there are some ways that parents can lower their Parent PLUS loan costs, such as:

• Paying more than the minimum amount each month or making extra payments whenever possible. This will reduce their principal balance and save them interest in the long run.
• Paying their loan as soon as possible or choosing a shorter repayment term. This will also reduce their interest costs and help them get out of debt faster.
• Qualifying for an interest rate discount or subsidy. Some loan servicers offer a 0.25% interest rate reduction if parents enroll in automatic payments. Some parents may also be eligible for an interest subsidy if they work in certain public service or nonprofit jobs. This means that the government will pay the interest on their loan while they are in deferment or forbearance.
• Refinancing or consolidating their loan with other federal or private loans. This may allow them to get a lower interest rate or a more favorable repayment term. However, they should be aware of the pros and cons of doing so, such as losing some federal benefits and protections or paying more fees.

Parent PLUS loans can be a useful option for parents who want to help their child pay for college, but they should also be aware of the costs and responsibilities involved. By following this guide, parents can make informed decisions about applying, repaying, and lowering their Parent PLUS loan costs.