How Do Parent PLUS Loans Work

How Parent PLUS Loans Work

Parent PLUS loans are federal student loans that parents of dependent undergraduate students can borrow to help pay for college. They are credit-based, meaning eligibility depends on the parent's credit history, and they carry a fixed interest rate set annually by the government.

Eligibility and Credit Requirements

To qualify, the parent must be the biological or adoptive parent of a dependent student enrolled at least half-time in an eligible program. The parent must pass a credit check, and there cannot be an adverse credit history, such as a default or bankruptcy within the past five years. If a parent is denied, the student may become eligible for additional unsubsidized loans.

Loan Limits and Application Process

Parents can borrow up to the full cost of attendance minus any other financial aid the student receives. The process starts with the Free Application for Federal Student Aid (FAFSA), after which the parent applies directly through the Department of Education's Federal Direct Loan Program. A Master Promissory Note must be signed, and the school must certify the loan amount.

Interest Rates and Fees

Parent PLUS loans have a fixed interest rate that applies for the life of the loan. An origination fee, deducted proportionally from each disbursement, is charged by the federal government. Interest begins accruing as soon as the loan is disbursed.

Repayment Options and Deferment

Repayment typically begins within 60 days of the final disbursement, though parents can request a deferment while the student is enrolled at least half-time. During deferment, interest continues to accrue and capitalizes when repayment starts. Standard repayment spans 10 years, but extended and graduated plans are available through loan consolidation.

Key Considerations for Parents

Parent PLUS loans are the parent's legal obligation, not the student's. They affect the parent's debt-to-income ratio and can impact eligibility for other forms of financial aid. Before borrowing, parents should compare the interest rate and fees with private loan options and assess their long-term ability to repay.