A Comprehensive Guide to Parent PLUS Loans Before You Borrow

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Stanley tate

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A Parent PLUS Loan is a student loan that is borrowed by parents instead of students. Parent borrowers may borrow up to the full cost of attendance or anywhere below that. Interest rates are higher for Parent PLUS Loans than typical student loans.

This loan is a Direct PLUS loan from the federal government, but private loan servicers like Sallie Mae and Discover also offer similar loans to eligible parent borrowers.

Below, I’ll cover everything you could want to know about Parent PLUS Loans: how to apply, whether you’re eligible, current interest rates, repayment options, and what to do if you can’t make payments.

Disclaimer: While I do recommend some products with affiliate links in this post, they’re ones I’ve seen work over years of experience as a student loan lawyer. I started this business to help a friend, and I’ll treat you with the same respect.

What are Parent PLUS Loans?

Direct PLUS loans are federal student loans issued to parents of dependent undergraduate students. They are often called Parent PLUS Loans, even though the “P” stands for “parent.” Graduate and professional students can sometimes take out this type of loan as well.

What does Parent PLUS Loan mean? The “PLUS” in Parent PLUS Loans means “Parent Loan for Undergraduate Students.” These loans have high interest rates and cannot be transferred to another family member.

It’s important to note that only one parent takes out a Direct PLUS loan. The parent that took out the loan is responsible for repayment, and the spouse cannot be forced to pay.

That said, both parents have the option of taking out PLUS Loans for their children. For example, one parent could take out a PLUS Loan for their daughter Mary, while the other could take one out for their son Darius.

What happens to a Parent Plus Loan in a divorce? In a divorce, the parent who borrowed the Parent PLUS Loan keeps paying, and the other spouse doesn’t have to pay anything. Whoever signed the master promissory note (MPN) is responsible. A divorce decree does not change liability on the loan.

In the event of other family changes, it’s important to note that only biological or adoptive parents are eligible to borrow Parent PLUS Loans. If a grandparent acts as a student’s guardian but has not legally adopted the student, the grandparent is not eligible for a Parent PLUS Loan.

How much is the interest rate for a Parent PLUS Loan? Parent PLUS Loans have a 6.28% fixed interest rate for parents and graduate or professional students during the 2021-2022 school year. They also carry extra loan fees of 4.228%. This is an unsubsidized loan, meaning that interest accrues during the time the student is enrolled.

What are the benefits of a Parent PLUS Loan? The benefits of a Parent PLUS Loan are that you can borrow as much as you need, and your interest rate will never rise.

However, there are also downsides to borrowing a Parent PLUS Loan. These include:

  • Borrowing too much can put you in unnecessary debt
  • PLUS loan interest rates can be higher than some other types of student loans
  • PLUS Loans are only eligible for income-contingent repayment plans, which come with the highest monthly payments of all the income-driven repayment plans

Private loans for parents

Private loan companies like Discover and Sallie Mae also offer student loans for parent borrowers. Let’s examine the potential benefits and drawbacks of taking out a private loan for parents.

Pros of a private loan for parent borrowers:

  • Parent private student loans can be a good option for parents with excellent credit who qualify for a lower interest rate
  • Parents who do not meet the eligibility requirements for a federal PLUS Loan may be able to qualify for a private loan

Cons of a private loan for parent borrowers:

  • Private loans are ineligible for federal student loan forgiveness programs, such as PSLF
  • There are no income-based repayment plans available for private loan borrowers

Families who may qualify for PSLF or use an ICR plan may want to choose a Parent PLUS Loan to take advantage of these potential benefits instead of choosing a private loan.

How can I use a Parent PLUS Loan?

First, funds from Parent PLUS Loans are used to pay the school for tuition, room and board, and other school fees.

If there’s anything left, the borrower will get a refund. Remember, these are still loan funds that must be repaid.

The refund automatically goes to the parent borrower. However, the parent can authorize the refund to go to the student to pay for other education expenses.

Eligibility for Parent PLUS Loans

Who is eligible for a Parent PLUS loan? To be eligible for Parent PLUS Loans, you must meet these eligibility requirements:

  • Credit history check
  • Parental relationship to the student
  • General federal aid eligibility

Credit history check

A bad credit history can prevent borrowers from qualifying for a Parent PLUS Loan.

Here are all the factors that can affect your eligibility:

  • If $2,085 or more of your loan is delinquent for more than 90 days
  • If $2,085 or more has been sent to a collection agency in the last 2 years
  • If you wrote off or charged off any federal student debt in the last 5 years
  • If any loan on your credit history has been in default in the last 5 years
  • If you discharged any debt in bankruptcy in the last 5 years
  • If any of your belongings have been repossessed in the last 5 years
  • If you faced foreclosure in the last 5 years
  • If you faced a tax lien in the last 5 years
  • If your wages were garnished in the last 5 years

If your credit check isn’t satisfactory to lenders, you could still get a Parent PLUS Loan. You’ll need to either:

  • Get an endorser with better credit history to basically co-sign the loan
  • Justify your extenuating circumstances to the U.S. Department of Education

Parental relationship to the student

You have to be the biological or adoptive parent to the student in order to borrow a Parent PLUS Loan. In some cases, a step-parent is eligible.

Guardians and grandparents are not eligible unless the student has been legally adopted.

General federal aid eligibility

Here are the general federal aid eligibility guidelines you also need to meet:

  • The student and parent have financial need
  • The student and parent are U.S. citizens or eligible noncitizens
  • The student is enrolled in an eligible degree or certificate program

Amount, interest rate, and other costs

What is the max amount for a Parent PLUS Loan? The max amount for a Parent PLUS Loan is up to the full cost of attendance as determined by the school, but you can borrow anything less than that as well. That gives some room to work within as you determine how much you need.

Keep in mind, for the 2021-2022 academic year, Parent PLUS Loans carry a 6.28% fixed interest rate — nearly double the average interest rate on a typical student loan.

Right now, Parent PLUS Loans also take 4.228% out of each loan disbursement. That percentage changes depending on the date of the first disbursement. Many call this an origination fee, but studentaid.gov refers to this as simply “loan fees.”

7 steps to apply for a Parent PLUS Loan

If a Parent Plus Loan is the best option for your situation, you should follow these 7 clear steps to apply.

  1. Make sure you’re eligible. Make sure your credit is in good standing 2 years before you borrow. If you’re not the biological or adoptive parent, consider adoption.
  2. Fill out the FAFSA (Free Application for Federal Student Aid). It may take up to 10 days to hear back about your eligibility.
  3. Check if your student’s school has a unique application process, using studentaid.gov’s comprehensive list.
  4. Decide how much to borrow. Unlike typical student loans, parents can borrow up to the full cost of attendance (minus other financial aid). Disbursement will be made to the school, but parents will receive any applicable refunds.
  5. If your adverse credit history renders you ineligible, find an endorser. An endorser is the federal government’s version of a cosigner. An endorser will be as responsible for the loan as the parent. (The student cannot be the endorser.)
  6. Fill out the actual application. Here’s the link to the Direct PLUS loan application. You may also consider private PLUS-type loans (but I don’t recommend them).
  7. Fill out the school’s promissory note for Parent PLUS Loans. Contact your student’s financial aid office for that school’s specific process.

Repaying a Parent PLUS Loan

You don’t have to start repaying your Parent PLUS Loan until the student drops below half-time enrollment plus a six month grace period — but only if you requested a deferment. Interest will accrue as soon as the loan is disbursed.

Federal Parent PLUS loans are eligible for 3 repayment plans:

  1. Standard Repayment Plan (10 years, or 30 years for a consolidated loan)
  2. Graduated Repayment Plan (10-30 years of slowly increasing monthly payments)
  3. Extended Repayment Plan (25 years)

It’s worth noting that Parent PLUS Loans are eligible for PSLF (Public Service Loan Forgiveness) if you, the parent, make 120 qualifying payments while working full-time in a government or eligible non-profit organization.

You can consolidate your Parent PLUS Loan into a Direct Consolidation Loan, making the new loan eligible for ICR (income-contingent repayment plan). After 25 years of payment based on income and family size, the remaining balance may be forgiven. But you may have to pay extra taxes.

With a deferment

You must request a deferment unless you want to start repayment as soon as the loan is paid out. Direct PLUS loans do not have an automatic deferment period. Interest will continue to accrue during all deferment periods on Direct PLUS loans.

If you deferred, you will start making monthly payments six months after the student is no longer enrolled at least half-time.

If you apply on studentaid.gov, you have the simple option to defer while your student is enrolled at least half-time plus six months.

With no deferment

If you choose not to defer repayment during the student’s enrollment period, you will start making monthly payments right away after the initial disbursement.

I can’t pay my Parent PLUS Loan. What now?

Life happens, and no one plans on not being able to pay their student loans — but it happens. If you (and your endorser, if applicable) can't pay your Parent PLUS Loan, here are 8 options to consider:

  • Change your repayment plan. You could benefit from changing the repayment plan for your Parent PLUS Loan. Choose between standard repayment, graduated repayment, extended repayment, and even income-driven repayment which could mean a far lower monthly payment.
  • Wait for loan forgiveness. If you qualify for a federal loan forgiveness program, or you consolidated your PLUS loan, then enrolled in income-contingent repayment and paid on time for 25 years, you could be eligible for student loan forgiveness.
  • Refinance the loan. To get a lower interest rate or better loan repayment terms, you can refinance your Direct PLUS loan. SoFi and CommonBond are good choices.
  • Request deferment or forbearance. You can request a forbearance or deferment, but there’s a limit to how many months you can go without paying. At some point, you have to make loan payments again. Interest typically accrues during the deferment or forbearance, depending on your type of loan.
  • Consolidation with other loans. Federal Direct PLUS loans can be consolidated (combined) with other student loans, and the interest rate is usually averaged. This may benefit you, but everyone’s situation is a little different.
  • Discharge in bankruptcy. If you can prove undue hardship at an adversary hearing during chapter 7 or 13 bankruptcy, you may be able to discharge student loan debt, including Parent PLUS Loans.
  • Change who’s responsible for the debt. You can’t simply transfer the debt, but the child (or anyone, really) could secure a private loan to pay off your debt. The new borrower would start repaying the new loan amount, and the original Parent PLUS Loan would be paid off. The new borrower would need good credit to obtain the loan and at a reasonable interest rate.
  • Use your home equity. Some private lenders may allow you to leverage your mortgage/equity to pay off student loan debt, such as a Parent PLUS Loan.

You can't transfer a Parent PLUS Loan to a spouse or to the student. Parent PLUS Loans are not eligible for IBR, PAYE, or REPAYE forgiveness programs.

Parent PLUS Loans can be forgiven if the parent borrower suffers a total disability that renders them unable to repay the loan.

If possible, you should always avoid going into default. Federal student loans can garnish your wages or tax refund to get the repayment they’re owed.

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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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