The parent PLUS loan is a federal loan that is just one option available to parents looking to cover outstanding costs related to college attendance. Before applying for a parent PLUS loan, carefully consider its features, benefits and drawbacks.
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; 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: The parent PLUS loan has a fixed interest rate, which is 7.60% for loans taken out for the 2018–2019 school year. The rate for the 2019–2020 year will be set on July 1, and it may be helpful to note that the rate for new loans has increased each of the last three years.
- Fees: An additional loan fee is calculated as a percentage of the loan amount (currently 4.248% for disbursements on or before Sept. 30, 2019) and is deducted from each disbursement.
- 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 and that features lower rates than the parent PLUS loan as well as no fees.
Interested in the benefits of our College Family Loan? Check out the details here.