For Parents: PLUS Loans Are an Option but Proceed With Caution

Many parents want to help their children pay for college, but when the tuition bill comes due they’re short on funds.

One option to fill in the gap is the Federal Direct Parent PLUS Loan program.

These loans are administered by the U.S. Department of Education and are available to parents and legal guardians of undergraduate students enrolled in college at least half-time.

 

Proceed With Caution

Always keep in mind that it’s best to avoid, or at least minimize college debt. It’s important that you know what you’re signing up for and fully understand the long-term impact of taking out loans. Your debt balance can rise very quickly and you’ll spend years paying it off.

To gain some perspective, read Nerd Wallet’s rundown on college debt statistics including the hefty $28,000+ average debt for Parent PLUS loans.

 

Ten Facts About Parent PLUS Loans

1. Even though the Parent PLUS loan is taken out to help a student pay for college, it is the parent or guardian — not the student — who will be responsible for the loan repayment.

2. Before you apply for a Parent PLUS loan, your child must complete the FAFSA.

3. You, as the parent or guardian, will need your own Federal Student Aid ID (FSA ID). You may have an FSA ID already if you filled out and signed the FAFSA for your child. You will use that same FSA ID for your Parent PLUS loan.

4. There are no set borrowing limits for Parent PLUS loans, but you may only borrow up to the cost of your child’s attendance (tuition, room and board and personal expenses) minus financial aid offered to the student. The college will determine how much you may borrow as it will be contingent on the amount of the student’s financial aid package.

Example: Let’s say the cost of attendance is $50,000, the student is awarded grants and scholarships in the amount of $30,000, and they take out a federal student loan in the amount of $3500. The college will likely allow you to take out a Parent Plus loan in any amount up to $16,500 to cover the balance due.

5. Just like a Federal Direct student loan, money borrowed through a Parent PLUS loan is sent directly to the college. The borrower never receives any of the money from the loan. If part of the loan is meant to support your student’s books or personal expenses, the college will move that money into your student’s account.

6. Parent PLUS loans have a fixed interest rate, meaning the interest rate remains the same for the life of the loan.

7. Parent PLUS loans are not subsidized. The federal government does not pay the interest on the loan while your child is in college. The borrower pays the interest.

8. Once the loan is fully disbursed to the college, interest begins to accrue and you’ll be required to make your first loan repayment within 60 days.

9. It’s relatively easy to qualify for a Parent PLUS loan because it’s not tied to family income, assets, or even outstanding debt. The main bar to getting a Parent PLUS loan is having an adverse credit history, meaning you’ve defaulted on prior debts, have had debts discharged through bankruptcy, have tax liens, and so forth. Learn about what counts as an adverse credit history in this guide from Federal Student Aid.

10. If you are denied a Parent PLUS loan because of an adverse credit history, your student will be able to apply for more loans through the government’s unsubsidized Federal Direct Student Loan program. Federal Student Aid offers tips on what to do if you are denied a Parent PLUS loan.

Read more about Parent PLUS loans at Federal Student Aid.

For some additional tips, watch this quick video by The FAFSA Guru: 3 Things You Need to Know About Parent PLUS Loans.