What are Parent PLUS Loans?

Parent PLUS Loans

What Are Parent PLUS Loans? A Comprehensive Guide

Paying for college is a significant financial investment for many families. For some, it’s a dream come true to see their children embark on higher education.

However, the rising costs of tuition, room and board, and textbooks can make it challenging for families to cover the full cost of education. In many cases, this leads parents to take out loans to help finance their children’s college education.

While students have access to federal student loans, like Direct Subsidized and Unsubsidized Loans, and private loans, parents also have an important federal loan option to help them manage the cost: Parent PLUS Loans.

Parent PLUS Loans are federal loans available to parents of dependent undergraduate students. They can help bridge the gap between the financial aid offered and the total cost of attendance.

Understanding how Parent PLUS Loans work, their eligibility criteria, repayment options, and forgiveness possibilities can help parents make informed decisions about financing their children’s education.

In this guide, we will cover every important aspect of Parent PLUS Loans, from their features to their limitations.

What Are Parent PLUS Loans?

Parent PLUS Loans are federal loans made to parents of dependent undergraduate students to help cover the cost of education.

Unlike other federal student loans, which are awarded based on financial need, Parent PLUS Loans are credit-based. This means that approval is largely determined by the parent’s creditworthiness.

The U.S. Department of Education offers Parent PLUS Loans to assist parents in covering education expenses that other financial aid, such as scholarships, grants, or federal student loans, do not fully cover.

Parents can borrow up to the total cost of attendance, including tuition, room, board, and fees, minus any other financial aid that the student receives.

The loans are issued in the parent’s name, and the parent is responsible for repaying the loan, not the student.

How Do Parent PLUS Loans Work?

Parent PLUS Loans function differently from other federal student loans. They are available only to parents of dependent students, and the loan’s eligibility is based on the credit history of the parent borrowing the funds.

While the loans can help cover the entire cost of attendance, parents must understand several important aspects before taking out a Parent PLUS Loan.

Key Features of Parent PLUS Loans:

1. Credit-Based: Parent PLUS Loans are credit-based, meaning that the parent must have a credit history that is deemed satisfactory by the U.S. Department of Education. If a parent has an adverse credit history, they may be denied the loan. However, parents can still potentially qualify by having a co-signer, depending on the circumstances.
2. Maximum Borrowing Limit: The amount that a parent can borrow depends on the total cost of attendance (tuition, fees, and other associated costs), minus any other financial aid the student receives. For example, if the student receives scholarships, grants, or other loans, the parent can borrow the difference between those awards and the total cost of attendance.
3. Interest Accrual: Parent PLUS Loans begin accruing interest as soon as the loan is disbursed. The interest does not wait until after the student graduates or leaves school, unlike some other federal student loans. This means that parents will start accumulating interest immediately.
4. Repayment Responsibility: The parent borrower is solely responsible for repaying the Parent PLUS Loan. Although the student may contribute to the loan repayment if they wish, the legal obligation rests with the parent. This is a crucial distinction, as it means that parents may have to take on the entire financial burden of repayment, regardless of their child’s career or financial situation after graduation.
5. Fixed Interest Rate: Parent PLUS Loans come with a fixed interest rate, meaning the rate remains the same for the entire life of the loan. This provides predictability in repayment, as parents will know exactly what their interest rate will be from the start.
6. Loan Fees: There is a loan fee associated with Parent PLUS Loans, which is deducted from the disbursed loan amount. The loan fee helps to cover the cost of loan processing and servicing. Parents should keep this in mind when determining how much to borrow, as the amount disbursed will be less than the amount they borrow due to the fee.

Eligibility Requirements for Parent PLUS Loans

To qualify for a Parent PLUS Loan, both the parent borrower and the student must meet certain eligibility criteria.

These criteria are designed to ensure that both parties are eligible for federal student aid and that the loan is issued to responsible borrowers.

Eligibility Requirements for Parents:

1. Parent Relationship: The borrower must be the biological or adoptive parent of a dependent undergraduate student. In some cases, a stepparent can also apply for a Parent PLUS Loan if they are listed on the student’s FAFSA. In rare circumstances, a grandparent or legal guardian may also qualify, depending on the school and specific circumstances.
2. Credit History: The parent borrower must have a satisfactory credit history. If the parent has an adverse credit history, such as a recent bankruptcy, defaulted debt, or a significant amount of unpaid debt, they may be denied the loan. However, parents with adverse credit may still qualify for the loan by providing a co-signer or by meeting other conditions outlined by the U.S. Department of Education.
3. U.S. Citizenship or Eligible Non-Citizen Status: The parent borrower must be a U.S. citizen or an eligible non-citizen. Eligible non-citizens include permanent residents and other individuals who meet specific residency requirements.
4. Repayment Obligation: The parent borrower must be legally obligated to repay the loan. The borrower is not allowed to transfer this loan obligation to the student after graduation or at any point during repayment.

Eligibility Requirements for the Student:

1. Enrollment Status: The student must be enrolled at least half-time in a degree or certificate program at a federally eligible school. A dependent undergraduate student may qualify for a Parent PLUS Loan regardless of whether they live on-campus or off-campus, or whether they work part-time during the school year.
2. Federal Aid Eligibility: Both the parent and the student must meet the general eligibility requirements for federal student aid. This includes being a U.S. citizen or an eligible non-citizen, having a valid Social Security Number (SSN), and being registered with the Selective Service (if applicable).

How to Apply for Parent PLUS Loans

Applying for a Parent PLUS Loan involves a few key steps. The process is generally straightforward but requires parents to carefully follow the guidelines set by the U.S. Department of Education.

Step 1: Complete the FAFSA

The first step in applying for a Parent PLUS Loan is completing the Free Application for Federal Student Aid (FAFSA). The FAFSA is required for all federal student loans and grants, including Parent PLUS Loans.

By submitting the FAFSA, the Department of Education will evaluate your financial need and determine eligibility for all forms of federal student aid.

Step 2: Apply for the Loan

Once the FAFSA is completed, parents can apply for the Parent PLUS Loan online through the Federal Student Aid website.

The application process requires parents to provide personal information, including their financial details, and indicate the amount of the loan they wish to borrow.

Step 3: Credit Check

The U.S. Department of Education will conduct a credit check on the parent borrower. If the parent has an adverse credit history, they may be denied the loan.

However, if this happens, the parent can appeal the decision, add a co-signer, or work out alternative solutions, such as borrowing with a credit-worthy endorser.

Step 4: Sign the Master Promissory Note

If the loan is approved, the parent borrower must sign a Master Promissory Note (MPN). The MPN is a legal agreement that outlines the terms and conditions of the loan, including the interest rate, repayment schedule, and other details.

This agreement binds the parent to the loan terms and initiates the loan disbursement process.

Are Parent PLUS Loans Eligible for Forgiveness?

While many federal student loans have robust forgiveness programs, Parent PLUS Loans have limited options for loan forgiveness.

This is important to understand, as parents may not be able to rely on traditional forgiveness programs to reduce their loan balance.

Limited Forgiveness Options:

1. Death of the Borrower: If the parent borrower dies, the Parent PLUS Loan is typically discharged. The remaining balance will be forgiven, and no further payments will be required from the estate.
2. Total and Permanent Disability: If the parent borrower becomes totally and permanently disabled, they may qualify for loan discharge. However, this is a specific and often complex process, requiring documentation from medical professionals and other qualifying criteria.
3. Bankruptcy: While discharging federal loans through bankruptcy is generally difficult, there are rare cases in which Parent PLUS Loans may be eligible for discharge in bankruptcy, but this is not guaranteed. This process is extremely challenging and may require legal assistance.

Are Parent PLUS Loans Forgiven After 10 Years?

Unlike some federal student loans that qualify for forgiveness after 10 years of qualifying payments (such as through the Public Service Loan Forgiveness (PSLF) program), Parent PLUS Loans are not automatically forgiven after 10 years.

In fact, Parent PLUS Loans are not eligible for PSLF or other income-driven repayment forgiveness options, which means parents cannot rely on a set timeline for forgiveness.

Can You Consolidate Parent PLUS Loans?

Yes, Parent PLUS Loans can be consolidated through the Federal Direct Consolidation Loan program.

Consolidation combines multiple federal loans into a single loan, potentially simplifying the repayment process by consolidating payments into one monthly bill.

Consolidation may also extend the repayment term, lowering the monthly payment amount. However, extending the repayment period also means paying more in interest over the life of the loan.

Repayment Options for Parent PLUS Loans

Although Parent PLUS Loans do not qualify for all income-driven repayment plans, there are several other repayment options that can help parents manage their loan obligations.

1. Standard Repayment Plan: The Standard Repayment Plan is the most straightforward option. It involves fixed monthly payments over a period of 10 years. This option results in the quickest repayment and typically the least amount of interest paid over the loan’s life.
2. Extended Repayment Plan: The Extended Repayment Plan allows parents to stretch their payments over a period of 25 years. This plan reduces the amount of the monthly payment but increases the overall interest paid over the life of the loan.
3. Graduated Repayment Plan: The Graduated Repayment Plan begins with lower monthly payments that gradually increase over time. Typically, the payments increase every two years. This plan is useful for parents who expect their income to increase significantly over time.

Final Thoughts

Parent PLUS Loans provide an important option for parents looking to help finance their child’s education when other sources of funding are insufficient.

However, it’s essential to understand the features of these loans, including their eligibility criteria, interest accrual, repayment terms, and limited forgiveness options.

Parents should carefully weigh the pros and cons before deciding to borrow through the Parent PLUS Loan program, keeping in mind their long-term financial responsibilities and the potential impact on their financial future.

Understanding the full scope of Parent PLUS Loans will help parents make informed decisions about financing higher education and managing the costs associated with it.