Parent PLUS Loans Guide

A college education can be expensive, even if you use savings, scholarships, grants, and student loans. 

But if you’re a parent of a college student, a Parent Loan for Undergraduate Students (PLUS) loan may help pay for a shortfall your child’s financial aid package doesn’t cover. Below, we’ll explore Parent PLUS loans, how they work, and alternative options to explore.

What is a Parent PLUS loan? 

The U.S. Department of Education offers Parent PLUS loans via a federal loan program for parents or guardians of undergraduate college students. As long as you’re eligible, you can use this loan to fund the gap between your child’s financial aid and the cost of attendance at their school. They can put the proceeds toward tuition, housing, books, supplies, and any other school-related expenses. 

With a Parent PLUS loan, you can borrow up the cost of your child’s attendance each year, minus any financial aid they earn, such as other loans, scholarships, grants, and work-study opportunities. There are no limits on the amount you can take out, regardless of your income. However, it’s important to be cautious. Overborrowing can lead to a significant debt burden. 

Here’s a closer look at what you can expect from a Parent PLUS loan:

Loan amounts	Up to the full cost of attendance
Rates (APR)	8.05%, fixed
Initial term	10-year standard repayment term
Fees	An origination fee of 4.228%

Parent PLUS loan eligibility requirements 

To qualify for a Parent PLUS loan, you’ll need to meet the criteria for federal aid, meaning you must be a U.S. citizen or hold eligible noncitizen status and have a valid Social Security number. Also, you must be the biological or adoptive parent of an undergraduate student who is enrolled in an eligible school and commits to a half-time course load, at minimum. 

In addition, a Parent PLUS loan requires a credit check and completion of the Free Application for Federal Student Aid (FAFSA), which your child must submit by a specific deadline. The Department of Education will also ensure that you have a clean financial history, free of charged-off accounts, accounts in collections, or delinquent accounts with a balance of $2,085 or more. If you’re a grandparent or another legal guardian, the Parent PLUS loan is not an option for you.

In summary, to take out a Parent Plus Loan, you must: 

1. Be a U.S. citizen or eligible noncitizen with a Social Security number
2. Be a biological or adoptive parent of an undergraduate student 
3. Have a child enrolled in an eligible school at least half-time
4. Undergo a credit check and not have an adverse credit history
5. Have a clean financial history as defined by the Department of Education

Because the eligibility requirements for a Parent PLUS loan are more stringent than other federal student loans, and the rates are typically higher, you should compare your options with private lenders to see which is more affordable.

Here’s a list of private lenders that offer parent student loans and let you check your rate without affecting your credit score.

How do you repay Parent PLUS loans? 

As a parent, you are responsible for repaying a Parent Plus loan, even though it is intended for your child’s college education. Once you take one out, the loan is automatically enrolled in the 10-year standard repayment plan. 

The 10-year plan is typically the fastest way to pay back your debt, but you may switch to a different repayment plan if you prefer a longer repayment term or lower monthly payments. Your repayment plan options include: 

• Graduated repayment: With this plan, you’ll begin with lower payments that gradually increase over 10 years. It may make sense if you believe your income will rise over time.
• Extended repayment: The extended repayment plan allows you to make fixed or graduated payments over a 26-year period. Your payments will be more manageable, but you’ll pay more in interest in the long run.
• Income-Contingent Repayment (ICR): If you consolidate your PLUS loan into a debt consolidation loan, the ICR plan will give you the chance to pay 20% of your discretionary income or what you’d pay on a 12-year plan, whichever is lower. You may be eligible for student loan forgiveness if you still have a balance after 25 years. 

Unlike other federal Direct PLUS loans, Parent PLUS loans do not qualify for the Pay As You Earn Repayment Plan (PAYE), the Saving on a Valuable Education (SAVE) Repayment Plan, or the Income-Based Repayment Plan (IBR).

How to apply for Parent PLUS loans 

If you’re interested in a Parent PLUS loan instead of a private student loan, follow these steps to apply.

• Ask your child to complete a FAFSA: First, your student will need to fill out and submit their FAFSA. They can print an application or apply on the StudentAid website.
• Determine financial gaps: After your child receives their financial aid package from their school and understands their living expenses, calculate the shortfall. This figure will inform you of how much to borrow through a Parent Plus loan.
• Start a Parent PLUS loan application: Depending on the school your child is attending, you may need to file a Parent Plus application. This will ask you for your desired loan amount and your student’s information, including the school they plan to attend. The application will also require you to enter personal information, such as your citizenship status, contact details, employer information, and relationship to the student. 
• Double-check your application: Make sure to review your application. Errors and inaccuracies can delay the acceptance and funding process, so it’s worth checking your work.
• Agree to a credit check and submit: After reading the disclosures, confirm that you agree to them and consent to a credit check. Then, submit your application and log in to the StudentAid website to monitor its status.

Can you transfer a Parent PLUS loan to a student? 

Yes, you may be able to transfer a Parent PLUS loan to your child. To do so, they can refinance the loan in their own name through a private lender. They’ll need to meet the qualifications for refinancing, so this may not be an option if they don’t yet have strong credit and a stable income. 

While each lender has its own criteria for refinancing, most will want to see that your student has the financial means to repay the loan themselves. Upon approval, the lender will issue a new loan to your child. Your child can then use the funds to pay back your Parent PLUS loan. The new loan will likely feature a different rate and terms than your original loan.

If you and your child agree to go this route, you’ll be released from your Parent PLUS loan. As long as your student makes on-time payments, their credit score will go up. Also, depending on your child’s finances and market conditions, they may get better terms and save money on the loan.

Before you transfer a Parent Plus loan to your student, understand that you’ll miss out on federal student loan benefits, such as income-driven repayment and student loan forgiveness programs. In addition, your child may be unable to afford the loan and damage their credit as a result. Discussing a transfer with your student is important to ensure you’re on the same page.

Pros and cons of Parent PLUS loans 

To determine whether a Parent Plus loan is suitable, you should weigh its benefits and drawbacks, including: 

Pros

• No caps on borrowing amounts

  With a Parent PLUS loan, you can borrow as much as you need to fill in your child’s financial gap for college. This is a huge plus because many federal and private loans impose limits on borrowing amounts.

• Multiple repayment options

  You can choose from several repayment options to align with your budget and financial goals. You might opt for the standard 10-year repayment term or change to a graduated, extended, or ICR plan.

• Fixed interest rate

  Your Parent PLUS loan will have a fixed interest rate. This means you can plan your repayments without worrying about higher interest costs due to market conditions.

• Eligibility for student loan forgiveness

  Since Parent PLUS loans are federal loans, your loan may be forgiven via the Public Service Loan Forgiveness (PSLF) program. To qualify for forgiveness, you’ll need to work for an eligible employer and make 120 payments.

Cons

• Credit check and clean credit history are required

  You must agree to a credit check to qualify for a Parent PLUS loan. Also, can’t have an adverse credit history, as defined by the U.S. Department of Education. Charged-off accounts, accounts in collections, or a delinquent account with a balance of $2,085 or more will make you ineligible.

• Origination fee

  You’ll be on the hook of a one-time origination fee of 4.228% of your total loan amount deducted from your funds.

• No guaranteed grace period

  Some student loans offer a grace period, meaning you won’t need to begin repaying them right away. However, Parent Plus loans don’t have grace periods, so you’ll be responsible for repayments immediately after your student graduates or dips below half-time enrollment status.

• Interest accrues during deferment

  Student loan deferment can allow you to avoid loan repayments while your child is in school. However, interest will still add up and could increase the amount you pay for the loan by thousands of dollars.

Our expert’s advice: When to consider private student loans over a Parent PLUS loan

Eric Kirste

CFP®

I’d recommend considering a private student loan in three situations: One, you want a variable rate. Variable-rate loans may start off lower than fixed-rate loans, but they can rise over time. If you are able to pay down your private student loan quickly, a variable rate could lead to savings. A variable-rate loan may be wise if you anticipate rates declining in the future and staying lower than the fixed rate over the life of the loan. Two, you’re looking for a loan term shorter than 10 years: If the goal is to pay off the loan quickly, you may be able to qualify for a lower rate with a private lender. Parent PLUS loans offer only a fixed 8.05% interest rate and a standard 10-year repayment period. Three, you have very good credit: You might qualify for a lower rate through a private lender. If you’re confident you won’t use the federal benefits of a Parent PLUS loan, applying for private student loans instead can make sense.

Alternatives to Parent PLUS loans 

When considering how to finance your child’s higher education, it is important to weigh all your options. Parent PLUS Loans are a viable option, but they’re not the only one. 

Here, we’ll explore three alternative products—federal student loans, private parent student loans, and student loans with a cosigner—and how they compare.

Federal student loans in the child’s name

Unlike Parent PLUS Loans, federal student loans are in the student’s name, not the parent’s, which could be advantageous for parents concerned about their own debt load. However, the loan limits for federal student loans are lower, meaning they may not cover all education costs.

Private parent student loans

Private parent student loans are another alternative. These loans are often more flexible in their terms and conditions. With private loans, your credit history and other factors determine your eligibility and interest rate, making it potentially a better fit for those with strong credit scores. 

However, it’s worth noting that private lenders might not offer the same borrower protections as federal loans, such as income-driven repayment options or loan forgiveness programs.

Check out our resource on the best parent student loans if you’re interested in this option.

Student loans with a cosigner

Student loans with a cosigner could offer better terms than a Parent PLUS Loan. In this setup, a trusted third party—often someone with a strong credit history—cosigns the loan, which can result in lower interest rates and better terms. 

However, the cosigner assumes equal legal responsibility for the loan in this arrangement. If the student defaults, it could harm the cosigner’s credit. When considering this option, both parties must understand the implications of the agreement. Our list of the best private student loans offers several top options for cosigned loans.