How Does a Parent Plus Loan Work? — All Your Questions, Answered

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Parent PLUS Loans work by letting a parent borrow federal student loans to cover the cost of their child's education. The loan is placed in deferment and monthly payments are suspended while the child is enrolled in school at least half-time. During this period, the interest continues to grow and the parent — not the child — is legally responsible for repayment of this loan.

When you fill out the FAFSA, short for Free Application for Federal Student Aid, the US Department of Education determines how much financial aid your college-bound child can receive to pay for school. The federal government also figures out how much you can contribute to the bill. You can cover that shortfall out of pocket, or by borrowing from a private lender or the Direct PLUS Loan program.

Private student loans typically offer lower interest rates, but eligibility is credit-based. So parents who have poor credit or low income are often shut out.

Direct PLUS Loan's, referred to as Parent PLUS Loans when borrowed by parents, don't check credit scores or income as part of the application process. Loan eligibility is instead based on need and passing a simple credit check that looks for foreclosures, repossessions, and recent bankruptcy filings.

Keep reading to learn what Parent PLUS Loans are, how they work, and how to qualify for borrowing.

What is a Parent PLUS Loan?

A Parent PLUS Loan is a type of federal student loan that lets parents borrow to help pay for their children's education expenses in college — up to the cost of attendance. These loans let parents fill in the budget gap for what scholarships, grants, and other federal and private student loans don't cover.

Federal Parent PLUS Loans have higher interest rates and fees, and qualify for fewer repayment plans than the Direct subsidized and unsubsidized loans students can borrow.

But unlike federal Direct Loans for students, there's no cap on what parents can borrow. There’s also no income requirement. The only safeguard the loan program has is a basic credit check that looks for adverse events (wage garnishment, tax liens, foreclosure, etc.). As a result, parents can end up in a financial hole that's near impossible to dig themselves out from.

Learn More: Can a Parent PLUS Loan be transferred to the student?

How do Parent PLUS Loans work?

Parent PLUS Loans have a fixed interest rate for the life of the loan. All Parent PLUS Loan borrowers get the same interest rate regardless of credit score or income. To put it simply, parents with great credit scores get the same interest rate as those with poor scores. This equal treatment for all parent borrowers is consistent with the Education Department's view that its loans are “instruments of social policy and not traditional debt."

After it approves a Parent PLUS Loan application, the department adds an origination fee, or loan fee, that's deducted from each disbursement. The fee for loans disbursed  between October 2021 and October 2022 is 4.228%.

The costs don't stop there. Interest accrues from the day the loan funds are sent to the school. The loan payments start the next month unless a forbearance is requested. If that happens, payments will be put on hold until the child graduates or drops below half-time enrollment.

Learn More: Parent PLUS Loan Repayment Options

How to qualify for a Parent PLUS loan?

You can borrow a Parent PLUS Loan if:

  • You are the biological or adoptive parent of a dependent undergraduate student who is enrolled at least half-time at an eligible school. Stepparents can borrow a Parent PLUS Loan if they are married to the custodial parent, but grandparents and legal guardians are not eligible to take out Parent PLUS Loans — even if they were primarily responsible for raising the child.
  • You do not have an adverse credit history — delinquent accounts, repossession, recent bankruptcy discharge, etc. If a credit check reveals negative marks, you may still be able to borrow a Parent PLUS Loan, butyou'll either need to get an endorser, also known as a cosigner, or prove you have extenuating circumstances.
  • You're a US citizen or eligible non-citizen and you meet other general eligibility requirements to borrow financial aid.

You can apply for a Parent PLUS Loan at studentaid.gov. You'll need an FSA ID to electronically sign the Master Promissory Note (MPN) to borrow the loan.

Learn More: How to Apply for a Parent PLUS Loan

Parent PLUS Loan Frequently Asked Questions

When can you apply for a Parent PLUS Loan? You can apply for Parent PLUS Loan once the Free Application for Federal Student Aid application becomes available Oct. 1 of each year. You can wait to see your child's financial need before applying, or you can apply and then wait to borrow once you know the budget gap — i.e., the difference between the cost of attendance and the student loans, grants, and scholarships your child has available.

How many Parent PLUS Loans can I have? There's no limit on the number of Parent PLUS Loans that you can borrow or the loan amounts that you can borrow. You can take out as many loans as necessary to pay for your child's undergraduate education. The lack of guardrails to prevent over-borrowing can crush families and hinder retirement plans.

Do you have to apply for a Parent PLUS Loan every year? You have to apply for a Parent PLUS Loan annually. The federal government looks at your income on the new FAFSA application to determine your child's financial need for the upcoming year.

How to check Parent PLUS Loan balance? You can check your Parent PLUS Loan balance by contacting your student loan servicer or visiting studentaid.gov. You can also check the monthly statements sent to your email or mailing address. Those statements will have your loan balance, the number of loans you borrowed, and your student loan account number.

When does Parent PLUS Loan repayment begin? Payments start the month after the loan funds are dispersed to the school's financial aid office. You can choose to make monthly payments while your child is in school or you can put them on hold with a deferment. If you need a lower monthly payment after your child leaves school — especially if you have your own student loan debt — look into income-driven repayment options. Read more about who to contact if you have questions about repayment plans.

What happens to my Parent PLUS Loan when I retire? Parent PLUS Loans don't go away when you retire. You'll need to keep making payments — even as your income decreases. If you can't afford to make the monthly payments, switch to the income-contingent repayment. ICR ties your payment amount to your income and can yield a $0 bill when the only money you get comes from Social Security benefits. After two decades of payments, whatever balance you're still carrying is written off. Read more about Parent Plus Loan forgiveness and retirement.

UP NEXT: Can't Pay Parent PLUS Loan? — Here Are Your Options

Trouble with your PLUS loan? Reach out.

If you want to go over your options, schedule a free 10-minute phone call with me. I’ve got years of experience helping people like you with their student loans.

Reach out. I can help you rethink or repay your Parent Plus Loan in a way that works for you and your family.

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