A PLUS loan is a type of federal loan that helps students supplement their financial aid. PLUS loans are intended to fill in the gaps where other sources of aid and family contribution fall short. PLUS loans can be used to pay tuition at qualifying universities, colleges, and career schools, and they can also be put towards other college expenses like room and board. A Parent PLUS loan is just one type of PLUS loan.
What Does PLUS Stand For?
The acronym, PLUS, stands for “Parent Loan for Undergraduate Students”. But because PLUS loans are now available to graduate students and not just parents, the acronym is largely defunct.
Direct PLUS vs Parent PLUS Loans
PLUS Loans are available to both graduate/professional students and the parents of dependent undergraduate students. (Undergraduate students cannot take out their own PLUS loans.)
Both cases are instances of “direct loans”, meaning they are issued directly by the federal government. A Parent PLUS Loan is the name given to these Direct PLUS Loans when they are taken out by parents on behalf of their undergraduate students. When they’re borrowed by professional or graduate students, these direct loans are referred to as Direct PLUS Loans, even though they don’t involve a parent.
Direct PLUS – Taken out by graduate and professional students without a cosigner.
Parent PLUS – Taken out by the parents of dependent undergraduate students.
Eligibility for Parent PLUS Loans
To be eligible for a Parent PLUS Loan, the parent must meet the following (studentaid.gov):
- Meet the general eligibility requirements for federal student aid.
- Pass a credit check OR do one of the following, and complete credit counseling, if you do not pass:
- Obtain an endorser (cannot be the student for whom you are taking out the loan).
- Provide satisfactory documentation of extenuating circumstances which led to your adverse credit check.
- Be the legal parent of an undergraduate student who is enrolled at least half-time in a participating institution.
Additionally, the student must meet the following:
- Meet the general eligibility requirements for federal student aid.
- Be enrolled as an undergraduate at least half-time in a participating institution.
How Much Can You Borrow with a Parent PLUS Loan?
The maximum amount you can receive with a Parent PLUS Loan is determined by the cost of attendance at your student’s school, as well as how much your student is receiving from other financial aid sources.
Parent PLUS Loan Interest Rates
The interest rate for Parent PLUS Loans disbursed between July 1, 2017 and July 1, 2018 is 7%. Interest rates for this type of loan are fixed, which means it won’t increase throughout the course of repayment.
When Parent PLUS Loans Are a Good Idea
Simply put, Parent PLUS Loans can be very useful and a great option—when used intelligently and with planning. Parent PLUS Loans can cover any remaining college expenses when no other funds are available. This makes them perfect for students whose scholarships, family contributions, savings, and other sources of aid don’t make ends meet.
When Parent PLUS Loans Are a Bad Idea
A Parent PLUS Loan can also quickly become a financial risk. As the parent taking out the loan, you are legally responsible for repayment. Many students and their parents who decide to take out Parent PLUS Loans come to an agreement that the student will take on loan repayment. However, students often fail to make payments, leaving their parents with a hefty financial burden and a possible dent to their credit score.
When Should You Use a Parent PLUS Loan?
Parent PLUS Loans should only be used to cover gaps in paying for college expenses, and only as a last choice. After grants, scholarships, work-study, out-of-pocket savings, and family contributions, you may still need loans to make up the difference. But before you take out a Parent PLUS Loan, your child should take out loans in their own name to cover as much of their college education as they can. If you are ineligible for a Parent PLUS Loan, your child may be able to obtain an increased subsidized loan.
Repaying Your Parent PLUS Loan
The legal borrower of any loan is responsible for the repayment of that loan. In the instance of Parent PLUS Loans, the responsible party is always the parent, (and their cosigner, if they have one). Even if the student themselves agrees to pay back the loan, the parent is legally responsible for ensuring repayment and is liable for any consequences that may come as a result of delinquency.
Parent borrowers are expected to begin repayment of their Parent PLUS Loans—generally—as soon as their loan is fully disbursed. This may vary, however, based on your child’s enrollment and deferment periods. You will receive a notice from your loan servicer when your first payment is due.
Parent PLUS Loan Deferment and Cancelation
The borrower of a Parent PLUS Loan can request deferment of their loan while their student is in school at least half-time, and for six months after they graduate or leave school. Interest will still accrue on the loan during periods of deferment.
If you decide to cancel your loan, you can do so before the money is disbursed by notifying your student’s school. Additionally, you can cancel all or part of your Parent PLUS Loan after the loan is disbursed, if you do so within a set time frame (this information will be provided on your promissory note).
Repayment Plans and Forgiveness
You can expect to have 10 to 25 years to repay your Parent PLUS Loan without penalty, depending on the type of repayment plan you choose. Direct Loans offer multiple repayment plans that can help ease the burden of high monthly payments. If you find yourself unable to repay your loan, contact your service provider right away. You may be able to request a lower monthly payment, a period of deferment, or forbearance. Parent PLUS loans are currently eligible only for standard, extended, graduated, and income contingent repayment plans. They are not eligible for IBR, PAYE, or REPAYE programs at this time.
Your Parent PLUS Loan may also be 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). You could also qualify for Permanent Disability Discharge with a Parent Plus Loan.
Can You Transfer a Parent PLUS Loan to the Student?
Once your child graduates from college, you may wish to transfer the loan into their name, so that they can assume responsibility for repayment. However, this isn’t possible with Parent PLUS Loans. Once the loan is taken out in your name, it stays permanently in your name for the remainder of the repayment term.
If you wish to transfer responsibility to your student, you will need to consult with a debt consolidation professional. They may be able to help your student take out a new loan to pay off your Parent PLUS Loan, thus transferring the debt to the student. However, watch out for high interest rates, since your Parent PLUS Loan likely has a much lower interest rate than any private loan available to your student.
Are Parent PLUS loans eligible for consolidation or refinancing?
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. Parent PLUS loans are eligible to be refinanced.
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).
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.
How to Use Parent PLUS Loans—Safely
Although you undoubtedly accept a financial risk when you receive a Parent PLUS Loan, most parents are no stranger to financial risk when it comes to supporting their kids. If you’ve weighed the risks and benefits, and both you and your child understand the potential long-term, financial implications your Parent PLUS Loan will have, there is nothing wrong with using a Parent PLUS Loan to pay for college. Just make sure to explore your other options, first.
Compare the Best Student Loan Refinance Rates
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.