While student loans, in general, have become a familiar topic in recent years, one type of student loan that many borrowers are less familiar with is Parent PLUS loans.
Parent PLUS loans are different from other direct federal loans in several ways. For starters, as the name suggests, the loan is actually made to the parents of dependent undergraduate students instead of the students themselves.
The purpose of Parent PLUS loans is to help lower the costs of a college education for student borrowers who’ve exhausted all other direct federal loan opportunities. By taking out student loans themselves, parents are able to keep their children from accumulating an unmanageable amount of student loan debt.
Below are some of the most common questions we receive regarding Parent PLUS loans:
How do I know if Parent PLUS loans are a good option for me?
Parent PLUS loans can be a great way for parents to help their children afford college once the student borrower has exhausted all other options including direct subsidized loans, direct unsubsidized loans, and Perkins Loans.
How do parents apply for Parent PLUS loans?
To apply, parents of student borrowers must first submit to the FAFSA which is a requirement for anyone seeking a federal student loan. (The FAFSA ID used for this submission will also be used to request the actual Parent PLUS loan.)
Once their FAFSA is submitted, parents then need to request a PLUS loan from StudentLoans.gov or contact the financial aid office of the school their child will be attending.
What are the eligibility requirements?
For parents to be eligible for a Parent PLUS loan, their child must be a dependent borrower (parents of independent borrowers are not currently eligible). Additionally, the parents must be biological, adoptive, or step-parents (foster parents, legal guardians, grandparents, and/or other relatives are not eligible).
Unlike other student loans, Parent PLUS loans are not based on financial need. As long as parents meet the minimum credit requirements and debt-to-income ratios, they are eligible to apply. Parent PLUS loans also do not have an income cap restriction.
Are cosigners allowed on Parent PLUS loans?
Yes, if parents do not meet the minimum credit and income requirements, cosigners are allowed as long as the cosigner does meets these requirements.
What are the student enrollment requirements for Parent PLUS loans?
For parents to remain eligible for Parent PLUS loans, the student borrower must maintain at least half-time enrollment status until graduation.
How much can parents borrow?
Parents can borrow up to (but not beyond) the annual loan limit on Parent PLUS loans. This limit does not have an aggregate total but is calculated by taking the full annual cost of attendance and subtracting any other financial aid received by the student borrower.
The cost of attendance is typically the sum of tuition, room and board, books, supplies, and any other education-related expenses.
What interest rate can parents expect to pay?
Interest rates on all Parent PLUS loans are fixed throughout the life of the loan. The current rate for 2016-2017 is 6.31% with rates adjusted every year on July 1.
What fees are associated with Parent PLUS loans?
The current fee for Parent PLUS loans is 4.272% and this amount will be deducted from each loan disbursement. Borrowers can request that total loan amounts are increased to make up for this fee as long as the total amount borrowed remains below the annual loan limit.
When does repayment begin on Parent PLUS loans?
Repayment typically begins no later than 60 days after the loan is fully disbursed to the borrower. However, borrowers can request to have repayment deferred until the 6-month grace period following graduation has passed. Interest will continue to accrue during these periods, after which repayment will immediately begin.
Are Parent PLUS loans eligible for any repayment plans?
Parent PLUS loans are currently eligible only for standard, extended, and graduated repayment plans. They are not eligible for IBR, PAYE, or REPAYE programs at this time.
Are Parent PLUS loans eligible for consolidation?
A parent may only consolidate their Parent PLUS loans with other loans that they have in their own name. They are not eligible to consolidate their PLUS loan with other loans taken out by the student as they have different borrowers.
Are Parent PLUS loans eligible for student loan forgiveness options?
Parent PLUS loans are currently only eligible for the Public Service Loan Forgiveness program and end of term forgiveness through the Income Contingent Repayment program (which is less generous than IBR or REPAYE).
Are Parent PLUS loans eligible for discharge or cancellation?
Parent PLUS loans can be discharged only in cases where the borrower becomes totally and permanently disabled, or either the borrower or student dies unexpectedly.
Do I have to resubmit a new FAFSA every year?
Yes, in order to maintain your eligibility for a Parent PLUS loan and the many benefits it offers, parents are required to submit a new FAFSA every year.
Are there tax benefits for parents who take out PLUS loans?
Yes, parents who take out PLUS loans are allowed to deduct up to $2,500 per year in interest paid through the Student Loan Interest Deduction allowance on their tax returns (using IRS Form 1098-E).
Are Parent PLUS loans a better option than private student loans?
This will depend entirely on the parent’s credit history. Parents with excellent credit may be able to find a private student loan with a lower rate than Parent PLUS loans. For this reason, it’s important to research your options before making a final decision.
Are there options available if a parent is denied a Parent PLUS loan?
Yes, if a parent is denied a Parent PLUS loan then the student borrower then becomes eligible for the same direct unsubsidized loan limits that would be otherwise available to independent students. As of 2017, these limits are $4,000 and up for Years 1 and 2, $5,000 and up for Year 3 and beyond, and an aggregate limit of $26,500 or higher.
We hope this article has helped answer your questions about Parent PLUS loans and whether or not they might be a good option for you in the future.