Parent PLUS Loans

A Parent PLUS Loan is a federal student loan taken out by a college student’s parent. It is meant to supplement other available financial aid and can cover up to the full cost of attendance for the student, minus any other financial aid they have received. If you are looking for a way to cover a gap in your child’s college costs, a Parent PLUS Loan can help make those ends meet.

Parent PLUS Loans vs. private student loans

Parent PLUS Loans are federal student loans with terms and conditions that offer many advantages over private student loans. For one, you can postpone the payments until the student is no longer enrolled at least half-time. Not all private student loan lenders allow payment postponement.

Further, Parent PLUS loans come with a fixed interest rate which is lower than many private loans. For the 2019 – 2020 school year, Parent PLUS loans have a 7.08% interest rate. Private student loans may come with variable or fixed rates varying from 4.5% to up to 14%. The rate you get will depend on your financial circumstances and your credit. Those with excellent credit may find a better rate from a private lender but the many will likely find federal loans offer the most competitive rates.

It is also often easier to get approved for a Parent PLUS Loan than a private student loan, even if you have an adverse credit history. Additionally, federal loans come with perks such as the option to consolidate the loan into a Direct Consolidation Loan, temporarily postpone or lower your payments and opt for a loan forgiveness program. All of these are far less common, even among the best private student loan lenders.

Parent PLUS Loans vs. federal subsidized and unsubsidized student loans

Federal subsidized and unsubsidized student loans help eligible students pay for the costs of education at a community college, trade school, career school, technical school or four-year university. They are issued directly to the student rather than the student’s parent. But what is the difference between subsidized and unsubsidized loans?

With Direct Subsidized Loans, the U.S. Department of Education will pay the loan’s interest while the student is in school and enrolled at least half-time, during a deferment period and during the first six months after the student leaves school. However, they are only available to undergraduate students that have a financial need. On the other hand, Direct Unsubsidized Loans don’t require students to show a financial need but they hold the student borrowers responsible for paying interest throughout the loan term. You can postpone payments until you leave school but the interest will accumulate and be added to the principal amount of your loan.

Direct Subsidized and Unsubsidized Loans have a fixed interest rate of 4.53%, notably lower than the 7.08% rate for Parent PLUS Loans. They also don’t require a credit check while PLUS loans do. Even so, it’s best for students to use funds from Direct federal loans first and then to partner with their parents to cover any gaps with Parent PLUS loans.

How to apply for a Parent PLUS loan

If you think a Parent PLUS Loan is the right fit for funding your child’s education, here’s what you need to do:

Step 1: Fill out the Free Application for Federal Student Aid (FAFSA)

The first step is to fill out the FAFSA You can do so online on the official FAFSA website or can print off the form and mail or fax it to the U.S. Department of Education. The online application allows for faster processing.

Any family with a student attending college should fill out the FAFSA to find out if they are eligible to have their costs covered by grants (they don’t have to pay back) or various federal loan options. To do so, you will need your social security number, federal income tax returns, W-2’s, bank statements, records of investments, records of untaxed income, the school(s) your child may attend and an FSA ID. You can create an FSA ID here.

Note, dependent students will need their parents to fill this out the FAFSA on their behalf.

Step 2: Log in to studentloans.gov

Next, you need to apply for the Parent PLUS Loan. You can do so as early as April for the following academic year. To do so, you will need to visit studentloans.gov and log in. To log in, you will need an FSA ID. If you created one for yourself while filling out the FAFSA, that will work. If not, you’ll need to create one. Don’t use your student’s FSA ID as they will not be able to apply for this loan because they are not a parent. Once you have an FSA ID, log in.

Step 3: Fill out the Parent PLUS Loan application

Now that you’re logged in, click on the option to “Apply for a PLUS Loan.” Next, select “Complete PLUS Request for Parents.” Be sure you click the “Parent” button and not the “Graduate” button as making mistakes will delay your request.

Start the application by selecting the academic year for which you are applying for the loan. Then, you will need to carefully enter your student’s information, not yours. Next, you will have payment deferment options to choose from and can opt to allow the loan to be used for other education-related costs like textbooks. You will then select the school you want to send the loan to, the amount you want to borrow, and when you want to receive the funds (usually for the full academic year).

The next page will ask for the borrower’s information — that’s you. Carefully provide all of your information and make sure it’s accurate, as you can’t edit the information after you submit it. Then, click apply.

Step 4: Receive an answer

After you submit your application, your credit will be checked and you will receive an answer in minutes.

Step 5: Master Promissory Note

If you are approved, the next step is to complete the Master Promissory Note (MPN) at studentloans.gov. The MPN is a legal document that outlines the loan rates and terms and asks for your promise to pay. After that, you can wait for a notification from the school stating that the loan has been applied to your student’s bill.

Parent PLUS Loans are only available for one academic year at a time so if you need the loan for various years, you will have to reapply for each year you need funds.

Parent PLUS Loan repayment options

While you will be put on a repayment plan when you originate a Parent PLUS Loan, you can opt for a different repayment plan at any time if you find it will be more advantageous. The repayment plans available for Parent PLUS Loans include the Standard Repayment Plan, Graduated Repayment Plan, and Extended Repayment Plan.

The Standard Repayment Plan calculates a fixed monthly payment amount so your loan will be paid off within 10 years. This plan usually costs less than any other plan.

The Graduated Repayment Plan sets your monthly payment lower in the beginning and then it increases every two years or so to ensure your loan is paid off within 10 years. This plan will cost more than the Standard Plan but less than the Extended Repayment Plan. It provides some flexibility if you anticipate your income to increase in the near future.

The Extended Repayment Plan sets your payments so your loan will be paid off within 25 years. The monthly payments can be fixed or increasing. This will cost more overall but less per month.

The bottom line

Parent PLUS Loans are a helpful financing option provided by the federal government that allows parents to take out an affordable loan to pay for their children’s education. However, it should be weighed alongside all other available financial resources available. Students may be eligible for grants they don’t have to pay back or direct subsidized federal loans with lower interest rates and other perks. The best first step is to apply for the FAFSA and review all of your options. Then, identify which strategy will be the most cost-effective. Learn more about student loans on our 2019 Student Loan Resource Page.

Jessica Walrack
Jessica Walrack
Contributing Writer

Jessica Walrack is a personal finance writer at SuperMoney, Interest.com, The Simple Dollar, and PersonalLoans.org. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and somewhat fun.

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