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What To Know About Parent PLUS Loans


The cost of higher education is forever increasing, as are the number of applicants for colleges and the number of students admitted every year. This means that more and more families and young people are having to seriously weigh their futures against their parents’ financial income.

For a lot of people going to university is simply too expensive to afford outright. Many turn to student loans to pay for such a privilege.

However, a Parent PLUS Loan is different for several reasons and maybe a better financial option for your family.

Here we will detail everything you need to know about the Parent PLUS Loan, allowing you to get a better understanding of whether or not this is the right option for you.

What Are Parent PLUS Loans?

The Parent PLUS Loan is different from a standard student loan as the financial burden is carried entirely by the parent, not the child.

You can use the parent PLUS loan to cover everything from tuition to textbooks. You should assess your financial situation very carefully as this can add up—click here for more information.

Whereas most student loans start their repayment schedule after the student is no longer in school, the Parent PLUS Loan begins on the student’s first day of class or after the loan has been paid out.

How Do You Apply for a Parent PLUS loan?

To apply for a Parent PLUS Loan, you must first fill out a FAFSA (Free Application for Financial Student Aid) form. You must also give any required additional financial information.

This will then help the federal government decide whether or not you are eligible to receive the Parent PLUS Loan.

How Much Money Is Available to Borrow?

Unlike with other student loans, with the parent PLUS loan, there is no annual cap. You can borrow up to as much as the cost of attendance subtracting any financial aid that your child is eligible to receive.

So, depending on the college of their choice and the other loans and awards that they are entitled to, the Parent PLUS Loan amount can vary significantly depending on the person and the university of choice.

Can Anyone Get a Parent PLUS Loan?

To be considered for the Parent PLUS Loan you will need a good credit score. As with any other form of loan you are expected to repay it and the better your credit history is the more trustworthy and reliable you are to do so (at least from the eyes of a bank or company).

If you have a credit score of “good” and above then you will be accepted.

However, if you have a poor (or even non-existent) credit score then do not worry. You will simply need to apply with a guarantor. This is a person who will repay the loan sum on your behalf if you can no longer make payments or miss a few.

This is just another level of security for the loan and gives the loan provider faith that your loan will be repaid, even if you are unable to do so.

There is also no minimum income level required to be eligible for a Parent PLUS Loan. You will have a credit check but that is the extent of the financial information required.

What Are the Interest Rates on a Parent PLUS Loan?

Unfortunately, as with almost any type of loan these days, there are interest rates. The interest rates on a parent PLUS loan are flexible, not fixed. This is because they are based on market rates.

This means that your interest rate may differ from that of your friend, however, it does not mean that your own interest rate will change. Once you have agreed to the loan your interest rate becomes fixed.

The interest rate is determined each year between the 1st of July and the 30th of July the following year.

For example, the period 2019-2020 had the interest rate set at 7.08%. This was, unfortunately, much higher than other undergraduate loans. The typical undergraduate loan has an interest rate of 4.53% and a typical graduate loan has an interest rate of 6.08%.

What Fees Are There?

In addition to the higher interest rates, there are also fees. When the money is disbursed there is a fee of 4.236%. This must be paid along with the monthly payments that start from this point onward. You can, however, ask for a deferral.

This option is possible if your child is enrolled to attend at least half of the time. Unfortunately, this does not stop the interest from building up. So, only consider this option if it is absolutely necessary.

There is also the option of forbearance. This is something to consider if your family experiences an illness or financial difficulties.

With this choice there are a few options:

  1. Miss a couple of payments
  2. Make a smaller payment
  3. Extend the time allowed to make the payment

Each of these options is available to help ease any financial worries.

Are There Any Extenuating Circumstances?

There are a few ways in which the loan can be forgiven. These are all very unfortunate cases. For example, if any of the following occur then the loan will be discharged (although note that this is a rare occurrence):

  • The school is shut down before the student has finished studying.
  • The student dies.
  • A parent becomes disabled.
  • Falsification of eligibility.

Unfortunately, most cases of bankruptcy will not mean that the loan is forgiven. It is only in the most extreme cases that a court will rule the loan as discharged, otherwise, it will still stand and need to be repaid.

So, Is a Parent PLUS Loan Right for My Family?

There are many factors to consider when deciding whether or not a Parent PLUS Loan is right for your family.

Since the interest rates on the parent PLUS loan are significantly higher than on other types of loan it is best used as a last resort to cover any financial gaps in paying for your child’s college education.

This way you can pay for their education without having to seriously cripple your family’s financial income by high-interest repayments every month.