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Going to college is more expensive than it is today. According to the Education Data Initiative, a 4-year full-time bachelor’s degree averages $38,270. Students attending private institutions will pay more, while those attending public state schools tend to pay less.
No matter where you go to school, not every student has the money to pay the fees. While federal student loans offer loans to dependent students — or younger students who rely on financial support from their parents — that may not be enough for every college attendee. A 2023 Sallie Mae study found that the average family spent more than $28,000 on school children in the 2022-2023 school year.
The same study found that families generally expect a parent’s income and savings to cover about 40% of college, and the other 8% goes to the parent’s loans, including Parent PLUS loans. Below, we’ll detail what you need to know about the Parent PLUS loan, including how it affects your child’s education and repayment long after they leave college.
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What is a Parent PLUS loan?
Parent PLUS Loans are federal student loans taken out by parents of dependent undergraduate students. Independent students or graduates and professionals can borrow Grad PLUS loans.
Because this is a federal loan, parents and dependent students must complete the Free Application for Federal Student Aid (FAFSA) and exhaust all other federal funding options — including scholarships, grants, work-study programs and other loans — before getting a Parent PLUS loan.
“Parent PLUS loans can be a good option if students have maxed out their federal aid package after completing the FAFSA,” says Alex Cavaliere, CSLP and financial advisor at Diamond State Financial Group.
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Who is eligible for a Parent PLUS loan?
Of all the federal student loans, the Parent PLUS loan is the only one where parents — not students — take out loans to pay for their children’s education. Parents and children must meet the requirements to borrow this loan. Here’s how to qualify:
- Parents must be the biological or adoptive parents of a dependent undergraduate student attending an eligible school at least part-time.
- Parent applicants must have no bad credit history, including no defaults, foreclosures, wage garnishments, taxes or bankruptcies within the past five years.
- Students must meet general financial aid eligibility requirements, such as enrolling in an eligible school at least part-time.
Of all the federal student loans, the Parent PLUS loan is the only one that requires a credit check. But many parents probably have, says Debbie Schwartz, founder of Road2College, a college planning site.
“Parent PLUS loans require a credit check but the credit criteria for borrowing is lax,” he said. “As long as there is no bad credit history, parents can borrow as much money as they need, up to (college) costs. This gives parents, who do not have a strong credit score, an option to borrow for college. .”
How much can you borrow with a Parent PLUS loan?
Direct loans, including subsidized and unsubsidized loans, are subject to loan limits based on dependency status and school years. But the Parent PLUS loan does not have the same restrictions. Saki Kurose, CFP and associate financial advisor at Omega Wealth Management, says you can borrow as much as you need with this loan.
“Parent PLUS loans are the only type of federal student loan that parents can take out for students,” he said. “Because there is an annual limit on federal student loans that students can take out in their name, Parent PLUS loans can be a great tool when undergraduate students cannot cover the full cost of tuition with Direct Subsidy. and unsubsidized student loans.”
However, it is important to avoid excessive debt, which can happen because there are no limits on Parent PLUS loans.
“Parents can borrow too much and not realize how much the total cost of the loan will be,” says Schwartz.
Parent PLUS loans vs private student loans
The Sallie Mae 2023 study found that most families will use less than 30% of scholarships and grants, or free money options that don’t require repayment after you leave school. Whether you’re tired of all the free money options or lack the time or resources to get scholarships and grants, Parent PLUS loans are a low-cost option to pay for school without taking out private student loans.
“While the interest rate is an important factor, it is also important to assess the overall affordability of the loan,” said Kurose. “Federal loans offer benefits like income-driven repayment plans and potential loan forgiveness, which private loans do not.”
Parents’ PLUS loans may come with other federal benefits, such as deferment, forbearance and a universal fixed interest rate. All borrowers pay the same interest rate regardless of their credit history, depending on the year you borrow the loan.
“The only borrowers of Parent Plus loans are parents,” Schwartz said. “Students are not legally responsible for repaying these loans. With private student loans, the student is the borrower and the parent is the co-signer, so both parties are legally responsible for repaying the loan.”
Private student loans, which can be borrowed through credit unions, banks and even online lenders, vary. Students borrow these loans with their parents, which helps them qualify as co-signers because many students don’t have the credit to borrow on their own. Repayment terms and benefits apply to each lender, but many do not offer the same benefits as federal student loans.
“Private student loans don’t have much flexibility in repayment — you can simply repay them at a better rate or extend the repayment term for a lower monthly payment,” says Cavaliere. There are no income-based repayment plans for private student loans. If you can’t afford to pay, you don’t have many options for help.
Bottom line
Before taking out a Parent PLUS loan, make sure you know who is responsible for repayment and what is at stake for borrowers. Once you’ve got all the free money you can, compare all the loan options to see which one offers the lowest interest rate, the easiest to access and the best repayment benefits.
