When it comes to financing a child’s college education, many parents find themselves looking beyond personal savings and student loans. One popular option is the Parent PLUS loan, a federal loan program designed specifically for parents of dependent undergraduate students. While it can be a useful tool for filling the gap between a child’s financial aid package and the total cost of education, it’s important for parents to understand the terms, eligibility requirements, and repayment options before deciding to borrow.
What Are Parent PLUS Loans?
Parent PLUS loans are federal loans that allow parents of dependent undergraduate students to borrow money for their child’s education. Unlike federal student loans, which are borrowed directly by the student, Parent PLUS loans are taken out by the parents and are the parent’s responsibility to repay. These loans can cover the full cost of education, including tuition, fees, room and board, and other educational expenses, minus any other financial aid the student has received.
One of the main advantages of a Parent PLUS loan is that it can be used to cover any gaps in funding after applying other financial aid, such as scholarships, grants, and federal student loans. This makes it an attractive option for parents whose children are attending schools with high tuition costs that exceed the financial aid package.
Eligibility for Parent PLUS Loans
Unlike other federal loans, Parent PLUS loans do not have specific financial need requirements. However, there are certain eligibility criteria that both the parent borrower and the student must meet.
To qualify for a Parent PLUS loan, the parent borrower must:
- Be a U.S. citizen or eligible non-citizen.
- Have a good credit history. While Parent PLUS loans do not require a credit score threshold, borrowers with an adverse credit history (such as recent bankruptcies or delinquencies) may be denied. However, a parent may still qualify by obtaining a creditworthy cosigner.
- Be the biological or adoptive parent of a dependent undergraduate student who is enrolled at least half-time in a Title IV-eligible school.
The student must also meet basic eligibility criteria, including being enrolled in a degree or certificate program at an eligible institution and maintaining satisfactory academic progress.
Key Features of Parent PLUS Loans
One of the main advantages of Parent PLUS loans is that they offer relatively low interest rates compared to private loans. The interest rate is fixed, which provides some predictability for repayment. For the current academic year, the rate for Parent PLUS loans is set by the federal government and is generally lower than what private lenders might offer for loans to parents.
Another key feature is that Parent PLUS loans allow for relatively high borrowing limits. Parents can borrow up to the total cost of attendance (including tuition, fees, room and board, and other related expenses) minus any other financial assistance the student receives. This can be particularly beneficial for families who need more financial help beyond federal student loans or scholarships.
However, Parent PLUS loans also come with some potential drawbacks that should be carefully considered before borrowing:
- Interest accrues immediately: Interest begins to accrue as soon as the loan is disbursed, meaning that the loan balance will grow during the period when your child is in school.
- No deferment options: Parent PLUS loans offer a deferment option for borrowers while the student is in school, but this can only be applied in certain circumstances. It’s also important to note that interest continues to accumulate during any deferment period.
- Repayment options are limited: Parent PLUS loans don’t offer as many repayment options as other federal loans. The standard repayment term is 10 years, but there are also options for extended repayment. There is also an income-contingent repayment plan, but it requires consolidation of the loan before you can enroll.
Repaying Parent PLUS Loans
Repaying Parent PLUS loans can be a challenge for some parents, especially if they have other financial obligations or if they borrowed a large amount to finance their child’s education. The repayment terms for Parent PLUS loans typically start immediately after the loan is disbursed, though parents can request a deferment while the student is in school, with a requirement to begin repaying after the student graduates or drops below half-time enrollment.
As with all federal loans, Parent PLUS loans offer options for repayment based on your income, but these are not as flexible as those available for other types of federal student loans. For example, an income-driven repayment plan is available, but only if you consolidate your Parent PLUS loan into a federal direct consolidation loan.
It’s also important to consider loan forgiveness. While there is no blanket forgiveness for Parent PLUS loans, parents who work in certain public service roles may qualify for Public Service Loan Forgiveness (PSLF) after 10 years of qualifying payments. This can be an attractive option for parents working in government or nonprofit organizations, although it’s important to carefully review the program’s requirements.
Considerations Before Borrowing
Before deciding to borrow a Parent PLUS loan, it’s important for parents to evaluate their financial situation and consider the long-term impact of taking on this debt. Parent PLUS loans are the responsibility of the parent borrower, not the student, which means parents will be the ones making the loan payments. Borrowing too much or taking on debt without a clear repayment strategy can strain family finances.
Additionally, it may be helpful to explore other funding options, such as private loans, which might offer more favorable terms or lower interest rates depending on your credit. However, federal loans like Parent PLUS loans come with certain protections, such as deferment and forbearance options, that private loans may not offer.
Conclusion
Parent PLUS loans can be a useful tool for parents who want to help their children finance their education, but it’s important to fully understand the terms, eligibility, and repayment options before borrowing. These loans offer low fixed interest rates and high borrowing limits, but they also come with drawbacks, including limited repayment options and immediate interest accrual. Parents should carefully assess their ability to repay the loan and explore all available financial aid options before making a decision.
Ultimately, Parent PLUS loans can be a helpful resource for many families, but they should be approached with caution. Consider all options, including scholarships, federal student loans, and private loans, to make the best decision for your family’s financial future.