The traditional college student is a recent high school graduate, so it’s likely that their parents will assist with the costs of college. The Free Application for Federal Student Aid (FAFSA) even asks about household income and ability to help pay for college. But what happens when parents can’t afford to contribute from their bank accounts or investments and students find themselves still falling short on financial aid?
As parents, the task of saving for college is becoming more difficult by the day. The price of the average college education has risen drastically in the last decade. Keeping up is tough. To help parents contribute to their son or daughter’s education, the federal government created the PLUS loan. With the PLUS loan program, you as a parent can help your student attend college—even if you can’t afford to simply write a check to do so. Federal loans generally have more protections and flexible repayment terms and student loan forgiveness options than private loans, and interest rates are typically lower as well.
>> Read More: Parent PLUS Loan vs. Private Student Loan
On this page:
- What is a Parent PLUS Loan?
- Federal Parent PLUS Loan Specifics
- Can You Transfer a Federal Parent PLUS Loan to a Student?
- Deciding if a Parent PLUS Loan is Right for You
What is a Parent PLUS Loan?
If your child is enrolled at least half-time in an eligible program at a participating college, vocational school, or graduate school, you can apply for the Parent PLUS loan as a parent borrower. The purpose of Parent PLUS is to offer students and their families another way to get that necessary funding even if the student is maxed out on financial aid and you as a parent can’t afford to help them bridge that remaining financial gap.
The Parent PLUS loan is a federal program, which means it’s offered by the U.S. Department of Education. When it comes to repayment, customer service, and any questions you have after the loan is disbursed, you’ll deal with one of the loan servicing companies that the government contracts with.
Unlike the purely need-based federal loans your student may have already taken out, PLUS loans require decent credit history in order to be approved. There is, however, still the possibility of an exception, which we’ll discuss in a moment.
Federal Parent PLUS Loan Specifics
Federal parent PLUS loans have a list of eligibility requirements that you must meet before you can start the application process and be approved.
- You must be the legal parent or legal guardian—biological, adoptive, or stepparent—of an undergraduate student attending a participating school at least half-time, and your student must be enrolled in a program that grants a degree or certificate.
- You cannot have an adverse credit history and a credit check is done.
- You must have remaining demonstrable financial need.
- You and your dependent student must be U.S. citizens or have permanent resident alien status.
- Your student cannot be incarcerated, have a conviction for a drug offense, or be subject to an involuntary civil commitment for mental health concerns.
- You and your student cannot be in default on any previous student loans you may have taken out.
- If your student is convicted of a drug offense after enrolling in school, does not maintain satisfactory academic progress, or goes into default on a previous student loan, he or she will lose eligibility for future federal student aid.
If you do have an adverse credit history, you may still be able to get a Parent PLUS loan by meeting one of these two conditions:
- Getting an “endorser,” which is essentially a cosigner, for your Parent PLUS loan. The endorser agrees to repay the loan if you don’t, and that person cannot be your student.
- Documenting the extenuating circumstances surrounding your credit history to the satisfaction of the U.S. Department of Education.
Regardless of the option you choose, you’ll need to attend credit counseling if you’re approved to help get you set up for success in repayment.
The total amount and loan limits on what you can borrow on a Parent PLUS loan is the school’s documented cost of attendance, minus any financial aid—including federal and private student loans, grants, and third-party scholarships—that your student has already received.
Rates, Terms, & Fees
The current interest rate for the PLUS loan is 7.6% APR, and that rate is fixed for the life of the loan. While every year the rates change, whatever rate you start with will be the rate that you continue with until the loan is paid off or you end up consolidating or refinancing.
There’s also an origination fee on the PLUS loan. For the 2018-2019 academic year, the fee is 4.264% of the loan amount, proportionally deducted from the loan balance. That means if you borrowed $10,000 when your loan funds are disbursed, you’ll receive $9573, and the other $446 would be deducted as your loan origination fee.
Regardless of how much you borrow and the loan disbursement amount, you’ll generally have between 10 and 25 years to repay the balance, depending on the repayment plan that you choose. While you won’t be eligible for all of the same repayment options that other federal loans have, you’ll still have quite a few to choose from.
The first step to applying for the Direct Parent PLUS Loan is to have your student complete the Free Application for Federal Student Aid (FAFSA). Once that is finished, the school will advise you on their procedures to apply for the Parent PLUS loan, although many of them will have you visit StudentAid.gov to complete the Direct PLUS loan application.
You’ll be subject to entrance counseling, which will explain the ramifications of taking out a federal loan for dependent undergraduate students. You will also need PLUS Credit Counseling if you have adverse credit and student loan exit counseling before you start repayment.
If your school does not use the StudentAid.gov avenue for application, they will have another process. In most cases, it will require much of the same information you used to complete the FAFSA and PLUS applications on the Student Aid website.
Can You Transfer a Federal Parent PLUS Loan to a Student?
As a parent, you cannot transfer responsibility for the Parent PLUS loan to your student through the federal government. However, you can refinance the loan through a private lender that allows you to transfer the loan to a student.
>> Read More: Refinance Parent PLUS Loans With a Private Lender
If you do not want to refinance with a private lender, and you decide before or shortly after disbursement that you no longer need or want the loan, you can have it canceled. You’ll want to consult your master promissory note for the specific procedure and timeframe for canceling.
You may also be able to get part of your loan discharged if you meet certain criteria, such as if you become permanently and totally disabled or if the school your student is attending closes. You can consult the StudentAid.gov website for specific criteria.
Deciding if a Parent PLUS Loan is Right For You
On the downside, the PLUS loan isn’t necessarily the best deal. Creditworthy borrowers can find better deals with private lenders, sometimes even with their own everyday bank. Many of the benefits that make federal loans a good deal aren’t available to you as a parent with a PLUS loan, and so in many cases, you can do better elsewhere.
If your child has already exhausted federal student aid on their own and is still unable to bridge the funding gap between what they can afford and the cost of attendance, a Parent PLUS loan could help. It’s easy to apply for, and even if your credit is less than stellar, you can still get approved. The Parent PLUS loan isn’t the best idea for every student and their parents, but for some families, it might make the difference between not being able to afford college and chasing their educational dreams.
Author: Nate Matherson
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