All About Parent Plus Loans

College students have many different alternatives, including grants, scholarships, work-study positions, and low-cost federal loans, available to them to finance their education.  Parents, however, have fewer funding options to help pay for a child’s college degree. Parent PLUS loans, especially when utilized in conjunction with non-debt forms of funding, are an excellent solution to pay for college.  Here we explain everything you ever wanted to know about Parent PLUS loans.

What is a Parent PLUS Loan?

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 Fees

Parent 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.

Who Qualifies for a Parent PLUS Loan

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:

Parent Requirements

• Parent (biological, adoptive, or custodial step-parent) or parents of a dependent undergraduate student

• Able to satisfy the general eligibility requirements for financial aid, including:

• U.S. citizen or eligible non-citizen with a valid Social Security number;

• Can demonstrate financial need, which is defined as the difference between a school’s cost of attendance and your Expected Family Contribution; and

• Able to sign the FAFSA certification statement stating that:

• You are not in default on a federal student loan and do not owe money on a federal student grant, and

• You will use federal student aid only for education-related purposes

• No adverse credit history, including:

• No current delinquencies of 90 or more days on any outstanding debt; and

• No “derogatory” events, such as a bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or default determination, within the past five years

Student Requirements

• Enrolled as an undergraduate at an eligible education institution at least half time (generally, this means completing 6+ credit-hours per semester)

• Able to satisfy the general eligibility requirements for financial aid, including all of the parent criteria (listed above), plus:

• In possession of a high school diploma or recognized equivalent, such as a GED certificate;

• Ability to maintain satisfactory academic progress, as defined by the school; and

• Registered with the Selective Service (applicable only to male students age 18 to 25)

Qualifying for a PLUS Loan with Adverse Credit History

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:  

• Obtain an endorser: You may be approved for a PLUS loan if you can find an endorser, who is someone without an adverse credit history willing to commit to repaying the PLUS loan if you cannot.  For parent borrowers, your endorser cannot be the student recipient of the loan.

• Demonstrate extenuating circumstances: If you can demonstrate, to the Department of Education’s satisfaction, that extenuating circumstances relate to an adverse credit history, then you may still be approved for a PLUS loan.  A few examples of extenuating circumstances:

• Debt that was included in a Chapter 13 bankruptcy (not a Chapter 7, 11, or 12 bankruptcy);

• Divorce decree that absolves a divorcee of responsibility for repaying a debt;

• Consolidation of a defaulted federal student loan (the consolidated loan cannot be delinquent); and

• Derogatory events that occurred more than five years ago.

If you are initially denied but your appeal is successful, then you (and your child) must complete online credit counseling to ensure that you clearly understand your rights and repayment responsibilities.  If both your application and appeal are denied, then that is obviously not ideal, but at least there is a silver lining: children of parents who are denied for PLUS loans are granted higher annual and aggregate borrowing limits.

How to Obtain a Parent PLUS Loan

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.

Repaying a Parent PLUS Loan

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.  

Pro tip: For schools that require you to obtain Parent PLUS loans via StudentLoans.gov, you have the option to request repayment deferment during the initial loan application process. 

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:

• Standard Repayment Plan: The Standard Repayment Plan has a ten-year repayment term and the lowest overall interest expense of any non-income-based repayment plan.  If you can afford the monthly payments, then this is an attractive option for paying off your debt in a relatively short span of time.  

• Graduated Repayment Plan: The Graduated Repayment Plan also has a ten-year repayment term, although the lower initial monthly payments typically result in a higher interest expense overall.  The Graduated Repayment Plan is a viable option for borrowers who expect to steadily earn more income over time.

• Extended Repayment Plan: The Extended Repayment Plan is available to borrowers with loan balances of more than $30,000.  Monthly payments may be fixed or graduated, and the loan term can be up to 25 years. Extended Repayment Plans offer lower monthly payments than the Standard or Graduated Repayment Plans; however, the extended repayment period typically results in higher interest costs overall.

• Loan Consolidation: The Direct Consolidation Loan Program was established by the Department of Education to assist borrowers who are repaying more than one federal loan (such as multiple Parent PLUS loans obtained over several years).  This program simplifies the repayment process by enabling borrowers to combine multiple student loan debt obligations into a single consolidated loan. The monthly payment for the consolidated loan is lower than the sum of the installment payments that would be required by each loan individually; however, the overall length of the repayment term is extended.  As such, loan consolidation almost always results in higher total interest costs.  Consolidated loans have a fixed interest rate, which is calculated as the weighted average of the interest rates of the loans that are being consolidated (rounded up to the nearest one-eighth of one percent).  Consolidated loans are eligible for income-based repayment plans and loan forgiveness (more on these below).  

• Pro tip: If you consolidate your loans, then by default you forfeit your right to any remaining deferment period, which normally extends until six months after your child’s graduation.  However, you have the option to indicate on the Direct Consolidation Loan application that you want the loan servicer to delay consolidation of your loans until near the end of your deferment period. 

• Income-Contingent Repayment (ICR) Plan: ICR Plans are available to eligible borrowers who have consolidated their loans under the Direct Consolidation Loan Program.  If you enroll in an ICR Plan, then your monthly payments are based on your annual income and family size.  Your monthly payments are limited to not more than 20 percent of your discretionary income, or the amount that you would be required pay on a fixed 12-year repayment schedule, whichever is less.  To remain eligible for an ICR Plan, you are required to certify your income and family size on an annual basis. Failure to do so would cause your required monthly payment to automatically revert to the amount due under the Standard Repayment Plan.  

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:

• Loan Forgiveness Under ICR Plans: Borrowers enrolled in ICR Plans are eligible for loan forgiveness after 25 years.  Any remaining loan balance is forgiven; however, borrowers should realize that they will be required to pay income tax on the forgiven amount in the year that the loan is forgiven.  If a large loan balance remains, then this could result in a very substantial tax bill in the year that forgiveness is granted.

• Public Service Loan Forgiveness Program: Parents who work full-time for the federal government or a qualifying nonprofit organization may be eligible for student loan forgiveness under the Public Service Loan Forgiveness Program.  This program forgives outstanding loan balances after borrowers make 120 qualifying monthly payments, which generally means that loan balances remaining after ten years are forgiven.  Eligible borrowers must be enrolled in an income-based repayment plan (such as the ICR Plan, which is the only income-based repayment plan available to parents) to qualify for forgiveness.  As an added bonus, loans forgiven under this program are not subject to any income tax in the year that forgiveness is granted.

Not exactly loan forgiveness, but the federal government provides loan dischargement in the event of death or disability.  Find out what happens to Parent PLUS loans if you die.

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:

• Refinancing in your name: If you refinance a PLUS loan, perhaps to secure a lower interest rate, then a new private loan replaces the original PLUS loan.  While refinancing will likely lower your monthly payments, any extension of the repayment term will typically increase the total interest expense incurred over the life of the loan.  

• Refinancing in your child’s name: With your child’s consent, you also have the option of refinancing a Parent PLUS loan by transferring the debt to your child’s name.  Many for-profit lenders, such as SoFi, Earnest, Laurel Road, Common Bond, and Citizens Bank, are willing to refinance a Parent PLUS loan by issuing a private loan to the child who received the college education.  The child must meet the lender’s eligibility criteria, which typically includes: 

• In possession of a bachelor’s degree (the child cannot still be a student);

• Able to pass a credit check without a co-signer;

• Stably employed with verifiable income; and

• Able to demonstrate a low debt-to-income ratio. 

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.

Consider Your Alternatives

While it is not strictly required, you and your child are advised to first pursue the various forms of financial aid that do not require repayment, such grants, scholarships, and work-study positions.  You have nothing to lose by submitting a FAFSA, but before you take the necessary steps to obtain a Parent PLUS loan, you can encourage your child to accept other federal loans (such as Direct Stafford Loans) that carry lower fees and interest rates.  After all of the lowest-cost alternatives have been exhausted, Parent PLUS loans remain as a viable solution to pay for a child’s college education.