Parents and grad students have options when it comes to paying for college. Federal aid, institutional scholarships and grants…prepaid tuition plans. But sometimes there’s a leftover cost.
Federal PLUS Loans are an accessible option for graduate students and parents of college students.
Parent PLUS Loans are federal loans for parents of full time students. They offer flexible repayment options, fixed interest rates, and higher borrowing limits.
Direct PLUS Loans are available to graduate or professional degree students. They are also known as “grad PLUS Loans.” Both Parent and Grad loans fall under the Direct Loan Program operated by the federal government.
What Is a Parent PLUS Loan?
As mentioned, Parent PLUS Loans can be borrowed by parents of undergraduate students, in order to help their child pay for college. These loans are funded by the U.S. Department of Education and are part of the Direct Loan Program.
Unlike other types of federal student loans, Parent PLUS Loans do require a credit check. If an applicant has an adverse credit history, they may not be approved to borrow a Parent PLUS Loan.
Recommended: What Is a Parent PLUS Loan?
How Do Parent PLUS Loans Work?
As noted previously, Parent PLUS loans are available to all qualifying parents of undergraduate students. Borrowers with poor credit history can ask an “endorser” to cosign the loan or borrowers can send a report clarifying their credit history to be considered.
The loan amount is limited to your child’s Cost of Attendance (COA), less any other aid awarded to the student. The interest rate is fixed for both loan types and interest accrues the moment it’s released, even during deferment. Also, PLUS loans have an origination fee of 4.228% for the 2023-2024 academic year.
Like other loans in the Direct Loan program, a third party company called a “loan servicer” manages customer service around general billing requests such as repayment and deferment.
Parent PLUS Loan Application Process
The first step in borrowing a Parent PLUS Loan is to have your child fill out the FAFSA® or Free Application for Federal Student Aid. This is required before a parent can request a PLUS Loan. After the FAFSA is taken care of, parents can submit an online application for a PLUS Loan.
Note that while most schools offer an online application, some schools may have a different process. If you have any questions, check in with the financial aid office at the school your child attends.
Before applying, remove any security freezes on your credit bureau files. Any active credit freezes will prevent an application from being processed.
It may take upwards of 20 minutes to complete the application. And you’ll generally need the following information:
• Verified FSA ID
• School Name
• Student Information
• Personal Information
• Employer’s Information (such as the employer’s name, address, and phone)
A verified FSA ID is a unique ID that acts as a legal electronic signature. It should only be used by that applicant.
After being approved for the PLUS Loan, borrowers will be required to fill out the Master Promissory Note (MPN). This indicates that you agree to the terms of the loan.
Recommended: Do You Have to Apply for a Parent Plus Loan Every Year?
Filling Out the FAFSA
The FAFSA is required for all forms of federal student aid, including grants, work-studies, and federal loans. Some state and school-specific aid may also be awarded based on information included on a student’s FAFSA form.
Applicants who submit a FAFSA get a Student Aid Report (SAR) that summarizes the form’s information. It will include your Student Aid Index number (SAI) and your eligibility for federal grants and loans among other details. Schools listed on your FAFSA get a copy of this report to determine aid.
Recommended: FAFSA Guide
Determining Your Eligibility
Borrowers must fulfill the following basic requirements:
• Be the legal guardian of an undergraduate enrolled in a higher ed program part-time or full-time
• Fulfill general Federal Student Aid requirements, such as citizenship
• Not have an adverse credit history
How Much Can You Borrow?
Parent PLUS Loan borrowers can take out the total cost of attendance of the program their child is enrolled in, less the amount of scholarships or other forms of aid.
How Much Do You Want to Borrow?
It can be tempting to borrow to make paying for college easier, but be cautious of overborrowing. Parent PLUS loans have costlier fees and rates, with the latest interest rate at 8.05% combined with a 4.228% origination fee.
For income-earning parents, it may be easier to measure the amount of student debt you should take on. As a general rule of thumb, all debt, including student loans, should not exceed more than 20% of your annual or projected annual take home pay.
Filling Out Your Parent PLUS Loan Application
Prospective students and parents of prospective undergraduates fill out a parent plus loan application online. Grad PLUS loan applications are separate online forms.
Enrollees will have the option to sign up for deferment and get a credit check on the spot — so be prepared to know which decision works best for you to apply for student loan. Finally, borrowers can view a demo to tailor the prep-work.
Recommended: Grad PLUS Loans, Explained
Signing a Promissory Note
Once you complete the plus loan application, you’ll be directed to complete a Master Promissory Note (MPN). An MPN spells out a borrower’s rights and responsibilities in the loan agreement.
Loans will not be awarded until an MPN is completed.
You’ll be asked to fill out personal information and provide two references as future contacts in case you’re unreachable.
What to Expect After Applying
Approved loans will be disbursed to the school you’re enrolled in and they’ll apply the loan to outstanding fees, tuition, and/or room and board. If there are funds leftover, you can cancel the remainder or choose to keep it for discretionary expenses related to higher ed day-to-day living.
What If You Are Denied?
If you are denied a loan, you may be able to add an endorser to your application. An endorser is someone who agrees to pay your loan if you are unable. If you were denied for having an adverse credit history, you will likely need to complete an online PLUS Credit Counseling course.
How Long Until the Loan Is Disbursed?
Each school pays out loans on a different schedule. Once the federal government has processed your paperwork and released funds, schools handle the process afterwards. If you have questions about when your loan will be disbursed, contact the financial aid office at your child’s school.
When Do You Need to Begin Repayment?
Repayment for Parent PLUS Loans may begin immediately upon disbursement or after deferment, depending on the repayment plan you select.
If you request a deferment, you are able to pause payments until six-months after your child graduates from college. If you are interested in this option, you can make this selection on the PLUS Loan application or request it directly with the loan servicer. Interest will accrue even while the loan is in deferment.
Applicants who do not choose deferment must begin repayment as soon as the loan is disbursed.
Income-Driven Repayment Options for Parent PLUS Loans
Parent PLUS Loan borrowers are able to enroll in an income-driven repayment plan if they first consolidate the loan through the Direct Consolidation Loan Program. Income-driven repayment plans tie the monthly payments to your income and repayment takes place over a period of 20 to 25 years.
On these plans, your loan payment may fluctuate each year, depending on your income and family size. At the end of your repayment period, any outstanding balance is forgiven, but under certain circumstances, this forgiven amount may be considered taxable income by the IRS.
The Takeaway
Parent PLUS loans are federally funded loans available to parents of undergraduate students. PLUS loans and private student loans meet different needs. Parents might like the idea of their children learning independence, and getting a loan in their name — even as a cosigner — might be a more attractive option.
Also, a key difference between PLUS loans and private student loans is credit score impact on borrowing limit and interest rates. Parents who have lower, but not adverse credit scores, might get higher interest rates and lower borrowing limits for a private loan versus a PLUS loan.
SoFi offers the same benefits as most federal parent loans, including deferment and flexible repayment plans. Our interest rates for private student loans are competitively low — and we have a no-fee policy.
FAQ
How long does it take for approval for a parent PLUS loan for college?
Loan applications are approved or denied on submission and schools are notified within 24 hours. Applicants must pass eligibility requirements after completing the application. An MPN and FAFSA also must be completed prior to loan awards. Disbursement processing times differ with each school.
Can you be denied a parent PLUS student loan?
Yes, if you have an adverse credit history. You can get a PLUS loan with an endorser or documentation proving extenuating circumstances around your history. Examples include foreclosure or bankruptcy.
What is the maximum borrowable amount for a parent PLUS loan?
The maximum amount allowed is your child or your Cost of Attendance (COA). COAs are determined by schools.
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