What Is a Federal Parent PLUS Loan?

What Is a Federal Parent PLUS Loan?

Are you looking for a way to help your child afford school? If so, you’ve probably heard of a parent PLUS loan from the federal government.

Before you decide whether this is the right option for your family, it’s important to fully understand this loan and what its impact can be on your student and your own financial future.


How Does a Parent PLUS Loan Work?

A federal parent PLUS loan is a loan available to parents of dependent college students. It’s a federal loan, meaning that it is backed by the federal government rather than a specific bank or credit union.

While it’s best to avoid personal debt for your children’s education, a parent PLUS loan can be a good option if it’s necessary.

Because it’s originated from the government, you can expect excellent borrower protections, flexible repayment plans, and forgiveness options that you would not find with another lender.

A PLUS loan doesn’t have a maximum borrowing limit, so it’s an option if there is a large gap between the aid package and the full cost of school.

What are the interest rates? This loan also offers fixed interest rates. The fixed interest rate is 5.3 percent during the 2020–21 school year.

Keep in mind, however, that as good as the rates on a PLUS loan are, direct Stafford loans are still less expensive for your family, so it’s best to max out that source first.


How Do You Qualify for a Parent PLUS Loan?

The PLUS loan will be in your name, as the parent. As a result, it’s fully your responsibility, and your credit and application are all you need to apply.

Filling out the Free Application for Federal Student Aid (FAFSA) is the first step to applying for a parent PLUS loan. Once that form is completed, a PLUS loan can be requested online at StudentLoans.gov.

If your student is not a dependent, or is not an undergraduate student, you will not qualify for this loan. Only biological or adoptive parents, or a stepparent married to the student’s parent, can apply for a parent PLUS loan.

Foster parents and other relatives do not qualify.

For wealthier families, the PLUS loan can be a way to access important funding, since it is not a need-based program.

Your credit history does matter for the parent PLUS program, but not in the usual way. You simply need to not have adverse credit history. Your credit score and debt-to-income ratio is not part of the calculation.

If you do have adverse credit history, you can still qualify with a cosigner.

Being approved for a parent PLUS loan does not mean that a calculation has been made showing that you can afford the payments, so be sure you are wise in the amount you choose to borrow!

What if you’re denied? If you are declined for a parent PLUS loan, your student will be eligible for additional unsubsidized Direct Stafford Loans as a result.

How Much Can You Borrow With a Parent PLUS Loan?

The PLUS loan program does not have a specific dollar limit, but borrowing is limited to the cost of attendance minus other financial aid your student receives.

Keep in mind that while one year’s worth of borrowing may not seem like a big deal, if you plan to borrow this difference every year, it can add up quickly!

In addition, if you borrow for one child and have other children, you may feel obligated to do the same for them.

There is a 4.228 percent origination fee for a PLUS Loan, so you won’t receive quite the full amount of the loan when it is disbursed.

Generally, repayment begins within 60 days of  when the loan is disbursed. However, you can choose to defer repayment while your student is in school if they are enrolled at least half-time.

Is a federal parent PLUS loan subsidized? No, a  PLUS loan is unsubsidized, so interest does accrue during deferment and is not paid for you by the government.

The parent PLUS interest rate and origination fee change each July 1 based on the yield of the last 10 year Treasury auction, in May of that year.  

As of now, interest rates on new loans are still fixed for the life of the loan; however, each year’s new loans may have different fixed rates, based on current market rates. 

Does a Parent PLUS Loan Affect a Parent’s Credit?

The repayment term for a parent PLUS loan is generally 10 years. Extended or graduated plans can be available as well, and loan consolidation can open additional payment options.

Because the loan is in your name, as the parent, a missed payment does not impact your child’s credit history. Instead, it impacts yours.

In addition, the debt is recorded as part of your debt-to-income ratio and may impact future borrowing applications.

Even if you make a spoken agreement with your student that you will take the loan and they will make the payments, keep in mind that PLUS loans cannot be transferred.

Using a private loan to transfer the debt to your child will remove it from the federal program, and you will lose the borrower’s protections and repayment options you would otherwise have.

If you fall behind on a parent PLUS loan, contact the lending agency and see what payment options are available. You may be able to change the term of the loan, or use federal consolidation to access income-contingent repayment.

If you have a PLUS loan and work in a non-profit or other eligible public service job, such as teaching, you may qualify for loan forgiveness after making payments for 10 years.

All education loans, including parent PLUS loans, are very hard to discharge through bankruptcy. So make sure that you are clear on how much you are borrow in the big picture—not just in one year—and that you can handle the debt!

Check out our other posts on loans and your credit:

How To Clean Up Bad Credit If Your Student Needs Student Loans

How A Student’s Credit Affects Private Student Loans

How Your Credit Score Affects Student Loans

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Debbie Schwartz is former financial services executive and founder of Road2College and the Paying For College 101 Facebook group. She's dedicated to providing families with trustworthy information about college admissions and paying for college. With data, tools and access to experts she's helping families become educated consumers of higher ed.