Paying for college can be stressful for both students and parents. When scholarships, grants, and regular student loans aren’t enough to cover the cost, many families turn to Parent PLUS Loans. These federal loans are available to parents of dependent undergraduate students, and while they can be a helpful solution, it’s important to understand how they work, how much can be borrowed, and what repayment looks like. In this guide, we’ll break down everything parents need to know to make the most responsible borrowing decisions and plan for repayment.
What Is a Parent PLUS Loan?
A Parent PLUS Loan is a federal student loan offered by the U.S. Department of Education. It is designed specifically for biological or adoptive parents (and in some cases, stepparents) of dependent undergraduate students. These loans help cover any educational expenses that aren’t paid for by the student’s financial aid package.
Unlike other loans, Parent PLUS Loans are taken out in the parent’s name and the parent—not the student—is responsible for repayment. To qualify, the parent must pass a basic credit check, but financial need is not a requirement. Parents apply for this loan through the Federal Student Aid website after their child fills out a Free Application for Federal Student Aid (FAFSA).
How Much Can You Borrow and at What Cost?
One key benefit of the Parent PLUS Loan is that it allows parents to borrow up to the full cost of attendance at their child’s college, minus any other financial aid the student receives. This includes tuition, housing, books, and other educational costs. Each school determines the cost of attendance, so the amount available through a PLUS Loan may differ depending on where the student is enrolled.
Parent PLUS Loans have a fixed interest rate that is set each year. For loans disbursed between July 1, 2023, and June 30, 2024, the rate is 8.05%. There is also a loan fee—currently 4.228%—that is deducted from the amount disbursed. That means if you borrow $10,000, you’ll receive roughly $9,577, but you still owe the full $10,000 plus interest.
Repayment Options and Strategies
Repayment of a Parent PLUS Loan usually starts soon after the loan is fully paid out, though parents can request a deferment while the student is in school and for six months after they leave. The standard repayment plan lasts 10 years, but there are other options that may provide more flexibility.
Income-Contingent Repayment (ICR)
While Parent PLUS Loans are not directly eligible for most income-driven repayment plans, parents can consolidate their loan into a Direct Consolidation Loan. This new loan then qualifies for the Income-Contingent Repayment (ICR) plan. With ICR, monthly payments are based on 20% of your discretionary income or what you would pay on a 12-year fixed schedule adjusted for income—whichever is less. After 25 years of payments, any remaining balance could be forgiven.
Public Service Loan Forgiveness (PSLF)
If the parent borrower works full-time for a qualifying government or nonprofit employer, they may be able to qualify for the Public Service Loan Forgiveness (PSLF) program. To be eligible, the parent must first consolidate the Parent PLUS Loan and then enroll in the ICR plan. After making 120 qualifying payments under this plan while working in a public service role, the balance of the loan may be forgiven tax-free.
Are There Risks or Downsides?
While Parent PLUS Loans are helpful, they do come with risks. The high interest rate and lack of flexible repayment plans can make them harder to manage compared to other federal loans. Also, since the loan is in the parent’s name, it affects their debt-to-income ratio, which could limit future borrowing ability such as for car loans or mortgages.
Before borrowing, it’s important for parents to consider their own financial health and retirement goals. Since these loans are not easily transferable to the student, parents should be certain they can afford the monthly payments for the life of the loan—even if the student struggles to find a well-paying job after graduation.
Tips for Responsible Borrowing
To make the best decisions, parents should exhaust other aid options first, such as scholarships and work-study programs. If a Parent PLUS Loan is necessary, borrow only what is needed—just because you can borrow the full cost of attendance doesn’t mean you should. Make a budget that includes monthly payments after graduation, and consider the benefits of early repayment if possible to reduce overall interest payments.
Parents should also communicate with their children about shared expectations. Although the loan is in the parent’s name, parents and students can discuss how the student may contribute after graduation toward repayment. This kind of teamwork can ease the burden and build strong financial habits in young adults.
Conclusion
Parent PLUS Loans can be useful tools for paying for a child’s college education, but they require careful planning and responsible borrowing. By understanding loan limits, interest rates, and repayment options, parents can avoid unnecessary debt and set their families on a path toward financial stability. Whether you’re just starting to explore ways to finance college or already considering a PLUS Loan, taking the time to fully understand your choices can make all the difference for your financial future.
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