Higher education is a significant investment in a student’s future, but the rising costs of tuition, room, and board, and other expenses can be a financial challenge for many families. To bridge the gap between available financial aid and the actual cost of attendance, the U.S. Department of Education offers a federal loan option known as the Parent PLUS loan. In this article, we will delve into the details of the Parent PLUS loan, its features, eligibility criteria, application process, and considerations for responsible borrowing.
Understanding the Parent PLUS Loan
The Parent PLUS loan is a federal loan designed to assist parents of dependent undergraduate students in financing their child’s education. Unlike federal student loans that are taken out by students themselves, the Parent PLUS loan is borrowed by parents on behalf of their children. This loan can be a valuable resource for families who want to contribute to their child’s college expenses while providing flexible repayment options.
Key Features of the Parent PLUS Loan
The Parent PLUS loan comes with several features that make it an attractive option for parents:
- Loan Amount: Parents can borrow up to the cost of attendance minus any other financial aid received by the student. This includes tuition, room and board, books, and other educational expenses.
- Fixed Interest Rates: Parent PLUS loans have fixed interest rates set by the government. These rates are the same for all borrowers and remain consistent throughout the life of the loan.
- Credit Check: Parent PLUS loans require a credit check, but the credit criteria are not as stringent as those for private loans. Adverse credit history does not automatically disqualify parents from eligibility.
- Repayment Flexibility: Parents have the option to choose from various repayment plans, including standard repayment, extended repayment, and income-contingent repayment. This flexibility allows parents to select a plan that aligns with their financial situation.
How Do Parent PLUS Loans Work?
Parent PLUS loans have a fixed interest rate, and the borrower pays an origination fee for each loan. Parent PLUS loans are not subsidized, so interest begins to accrue on the outstanding loan balance as soon as funds are disbursed and continues to accrue even if the loan is in deferment.
This is not a loan to the student. As Richard D. Gaudreau, a student loan attorney in New Hampshire, points out, “It is not a co-signed loan.” These credit-based loans are made to the parent alone and are different from private student loans, which a parent might co-sign.
Eligibility and Application Process
To be eligible for a Parent PLUS loan, parents must meet the following criteria:
- Be the biological or adoptive parent of a dependent undergraduate student enrolled at least half-time in an eligible program.
- Have a valid Social Security number.
- Not have an adverse credit history (unless they qualify for a creditworthy endorser).
The application process for the Parent PLUS loan involves the following steps:
- Complete the Free Application for Federal Student Aid (FAFSA) to determine your child’s eligibility for financial aid.
- Log in to the U.S. Department of Education’s student aid website to apply for the Parent PLUS loan.
- Undergo a credit check during the application process.
- If approved, sign a Master Promissory Note (MPN) to agree to the loan terms and conditions.
Parent PLUS eligibility requirements
Parent requirements:
- You must be the biological or adoptive parent of a dependent undergraduate student enrolled at least half-time.
- You must be a U.S. citizen or eligible non-citizen.
- You generally must meet minimal credit standards, and the student must meet general eligibility requirements for financial aid.
- Grandparents and legal guardians aren’t eligible to take out these loans unless they legally adopt the student.
Student requirements:
- They must be a U.S. citizen or eligible non-citizen.
- They must not have previous student loan defaults that haven’t been resolved or consolidated into a federal direct loan.
- Male students who are citizens ages 18 to 25 need to register for the Selective Service System.
Credit requirements for a Parent PLUS loan
For two years before your credit is pulled: You can’t have an “adverse cred0it history,” including one or more debts that are more than 90 days overdue that total more than $2,085, or a collection or charge off.footnote1
For five years before your credit is pulled: You can’t have a loan default, a discharge of debts in bankruptcy, foreclosure, repossession, tax lien, wage garnishment, or a write-off of a federal student aid debt.
Responsible Borrowing Considerations
While the Parent PLUS loan provides an opportunity to support your child’s education, responsible borrowing is essential to ensure both parents and students can manage the debt:
- Assess Affordability: Determine the amount you can comfortably borrow without compromising your own financial stability.
- Open Communication: Have candid conversations with your child about the financial commitment associated with the loan and any expectations for repayment.
- Consider Alternatives: Explore other financial aid options, scholarships, grants, and work-study programs before opting for the Parent PLUS loan.
- Budgeting: Create a budget that includes loan repayment to ensure you can manage the monthly payments alongside other financial obligations.
Conclusion
The Parent PLUS loan offers parents a way to actively contribute to their child’s higher education journey. By providing essential financial support, parents can help their children pursue their academic aspirations and set a strong foundation for their future careers. Responsible borrowing, thoughtful financial planning, and transparent communication between parents and students are crucial for ensuring that the Parent PLUS loan contributes positively to the educational experience without causing undue financial strain.
