Is the parent PLUS loan the best option for parents looking to cover outstanding costs related to college attendance? This federal loan is just one option to consider. Before applying for a parent PLUS loan, understand student loan basics and what you, as parents, should know before applying for a student loan. Then, carefully consider the features, benefits and drawbacks of a parent PLUS loan compared to other college financing options to determine the best choice for you and your student.
Features of the Parent PLUS Loan
- Availability: The parent PLUS loan is available to biological and adoptive parents, and in some cases stepparents, of undergraduate students who do not have adverse credit history. Some colleges may include the PLUS Loan in a student's financial aid offer; however, just because a PLUS Loan is included does not mean that parents are required to accept it.
- Limits: A parent can borrow up to the cost of attendance, an amount that is determined by the student's school, minus other financial assistance received by the student.
- Interest rate: Parent PLUS loans first disbursed on or after July 1, 2024, have a fixed interest rate of 9.08%. Like other federal student loans, the interest rate for new PLUS loans changes annually on July 1.
- Repayment: Borrowers may choose from different plans to repay the loan over a 10-year period. Loans of more than $30,000 are eligible for an extended repayment period that allows borrowers up to 25 years to repay the loan. Repayment generally begins as soon as the loan is disbursed, but parents may request to defer repayment while the student is enrolled at least half time plus an additional six months.
Benefits of the Parent PLUS Loan
- Pre- and overpayment: Some borrowers choose to make extra payments to pay down parent PLUS loans more quickly and to reduce the amount of interest repaid. There is no penalty for paying extra on PLUS Loans.
- Federal repayment options: Borrowers may choose from different federal repayment plans to fit their budget, but most income-driven repayment plans are not options for parent PLUS loans. These loans also have deferment and forbearance options for borrowers who have difficulty making payments; however, interest continues to accrue daily even when payments are not required. Unpaid, accumulated interest will be capitalized, or added to the loan balance, at the end of the deferment or forbearance period.
- Death and disability: The loan can be discharged if the parent borrower dies or becomes totally and permanently disabled. In addition, the loan can be discharged if the student dies.
- Cancellation: If a parent applies for a PLUS Loan, he or she can cancel all or part of the amount before the loan is disbursed to the school. After disbursement, borrowers have a limited time to cancel all or part of the loan amount by contacting the school's financial aid office.
Drawbacks of the Parent PLUS Loan
- Discharge: Federal parent PLUS loans are rarely discharged for financial difficulties resulting from unemployment, age-related or other illnesses and injuries, or bankruptcy.
- Nontransferable: Parents cannot transfer the PLUS loan to their student to repay after they finish school. Parents and their students may be able to work together to refinance the loan in the student's name through a private lender, although doing so will result in the loss of federal repayment options.
- Timing: Many parents face high education debt burdens at a time of life when earning power generally decreases and limited income is needed for living or medical expenses. Defaulting on a parent PLUS loan can lead to the garnishment of Social Security benefits, tax refunds and wages.
Other Considerations Before Taking Out a Parent PLUS Loan
The following items could be considered a drawback or a benefit, depending on personal and other circumstances.
- Qualification: Approval for a PLUS Loan does not take into consideration a parent's income, other outstanding debt, assets or years until retirement, so parents should carefully consider how much they can realistically repay.
- Interest: The fixed interest rate will not increase during the life of the loan, but borrowers also won't be able to take advantage of lower market rates in the future unless they refinance with a private lender.
Before taking on a parent PLUS loan, you should also compare it to other options, such as our College Family Loan, which is a private education loan with a cosigner option to help secure lower rates, no upfront cost and no fees. The College Family Loan also offers multiple repayment options so you can choose what works best for you.
Bottom line: Choosing to apply for either a private parent loan or the parent PLUS loan is a personal decision. The PLUS loan has some but not all the repayment benefits of federal loans for students. It has one interest rate for all applicants and includes an upfront fee of more than 4.00%. Rates for private loans, like the College Family Loan, are based on your credit and typically do not have an upfront fee. In addition, lenders offer their own repayment benefits, which may be as generous as what parent PLUS loans allow. It's important to understand the differences before deciding which is best for your circumstances.
Interested in the benefits of our College Family Loan? Check out the details.
