First, let’s start with the basics. A Parent PLUS loan is a federal loan that is sponsored by the William D. Ford Federal Direct Loan Program and administered by the U.S. Department of Education. Parent PLUS loans are unsubsidized loans that feature fixed interest rates, generous borrowing limits, and flexible repayment terms. Parent PLUS loans include loan origination fees.
Flexible Borrowing Limits
Parent PLUS loans feature generous maximum borrowing limits. Eligible parents may borrow up to the cost of attendance, which is calculated by each school separately and includes living expenses and other education-related costs, minus any other financial aid that the student receives. Parent PLUS borrowers are not subject to Department of Education-specified loan limits, either annually or in aggregate.
Fixed Interest Rates
The interest rate for Parent PLUS loans, which the Department of Education sets annually for PLUS loans to be issued in the upcoming year, is fixed for the life of the loan. Parent PLUS loans typically carry an interest rate in the range of six to eight percent, which is somewhat higher than the interest rates associated with other (direct-to-student) federal loan programs. The overall interest expense incurred by a parent borrower will vary depending on the repayment plan that you choose (more on this below).
Loan Origination FeesParent PLUS loans are subject to relatively high loan origination fees, which are automatically deducted from each loan disbursement. The loan origination fee, which typically hovers just above four percent for PLUS loans, is established on an annual basis by the Department of Education. (By comparison, loan origination fees for other types of federal loans are closer to one percent.) Ostensibly assessed to cover the cost of processing the loan application (the Free Application for Federal Student Aid, or FAFSA, in this case), the loan origination fee reduces the amount of aid that you actually receive.
Parent PLUS loans are generally available to the parents of undergraduate dependent students who are enrolled at least half time in school. The Federal Student Aid Office of the Department of Education sets forth the eligibility requirements for Parent PLUS loans. To qualify, parent and child must meet all of the following criteria:
Even with an adverse credit history, you may still be able to obtain a Parent PLUS loan. If your PLUS loan application is denied, then you can appeal the decision by pursuing one of these two options:
To apply for a Parent PLUS loan, both you and your child must first submit a FAFSA. The schools to which your child is accepted will utilize the FAFSA results, along with information about your credit history, to verify your eligibility for a PLUS loan. Most schools utilize the online portal StudentLoans.gov, which is administered by the Federal Student Aid Office, where you can log in, apply for specific loans and programs, and accept offers of federal financial aid.
Before any loan proceeds are disbursed, you will be required to sign a Master Promissory Note whereby you agree to the terms of the loan. Some schools also require new borrowers to complete online credit counseling. The Department of Education will disburse the loan, minus the origination fee, directly to the school, which will withhold an amount equivalent to the costs of tuition and other applicable fees (such as room and board if your child lives on campus). The remainder, if any, will be paid by the school directly to you. For each year that you wish to obtain a Parent PLUS loan, you and your child will each need to complete a new FAFSA and undergo the same eligibility verification process.
Just like with any federal student loan, the Parent PLUS loan features a variety of repayment options. Although the Department of Education is your lender, it contracts with several loan servicers, which provide billing services and administer the available repayment options.
When Does Repayment Begin?
Regardless of which repayment option you choose, it is important to clearly understand when repayment is required to begin. By default, you are required to commence repayment on a Parent PLUS loan as soon as the loan is fully disbursed. However, you may request repayment deferment while your child is still in school and for a six-month grace period following graduation, provided that your child attends school at least half time.
Interest Accrual During Deferment
If you choose to defer repayment of a PLUS loan, then it is important to keep in mind that interest accrues during the entirety of the deferment period. The accrued interest is capitalized (added to the principal amount that you actually borrowed) when the deferment period ends. As a result, when you do start to repay your debt, you will be paying interest on interest, in addition to interest on the original loan. If you can afford to begin repaying your PLUS loan prior to the end of the deferment period, then you absolutely should.
Flexible Repayment Options
One of the main benefits of borrowing federal money is the variety of flexible repayment options available to students and parents. In a nutshell, these are the repayment options available to you as a parent borrower:
Whichever repayment option you choose, don’t forget to claim the Student Loan Interest Deduction on your taxes. Learn more about deducting Parent PLUS loan interest payments from your taxable income.
Loan Forgiveness Programs
Another attractive feature of federal student loans is the availability of loan forgiveness programs. The Department of Education administers two different loan forgiveness programs for which parents may be eligible:
Refinancing with a Private Lender
All the repayment options described above involve making monthly loan payments directly to the federal government. However, you also have the option of repaying a PLUS loan by refinancing your loan with a private lender. If you choose to refinance, then you have a couple of different options available to you:
Before choosing to refinance with a private lender, it is important to realize that private loans do not feature any of the protections or flexible repayment options offered by the federal government. Private loans are typically not eligible for loan forgiveness, income-based repayment plans, or financial hardship provisions such as deferment and forbearance. Learn more about the differences between Parent PLUS and parent private loans.
Utilize the Repayment Estimator Tool
The Federal Student Aid Office provides a handy Repayment Estimator tool to compute your monthly payments under different federal repayment plans. Borrowers can utilize this tool to explore all the repayment options available to them.