College is getting more expensive. Average tuition and fees at four-year private colleges totaled $35,676 in the 2018–2019 academic year, according to a U.S. News & World Report survey . The cost of both public and private colleges continues to rise every year.
Those skyrocketing costs mean more and more undergrads are turning to loans to help finance their education. In fact, 70% of college graduates are leaving school with a significant amount of debt.
But there’s only so much students are allowed to borrow in federal loans, with undergraduates currently limited to just $5,500 to $12,500 a year in Direct Subsidized and Direct Unsubsidized Loans. The specific amount depends on factors such as whether a student is a dependent and their year in school.
When the amount a student can borrow isn’t enough to cover the cost of attendance, parents may decide to step up and take out additional loans. The federal government loan that parents of dependent undergraduates can qualify for is called a Direct PLUS Loan (graduate and professional students can also apply).
Parent borrowing has steadily increased in recent decades. Today, at least 3.4 million borrowers have taken out Parent PLUS Loans and owe a combined $87 billion, not including loans that have been consolidated. Here’s what you need to know about this type of federal government loan.
Understanding Parent PLUS Loans
Congress established the Parent PLUS Loan program in 1980 with caps on how much parents could borrow. Those limits were eliminated in 1992, and parents can now take out up to the full cost of attendance at their child’s institution (which the school determines), after any other financial aid the student receives.
Parent PLUS Loans typically come with higher interest rates than Direct Loans. For Parent PLUS loans issued in the loan year starting July 1, 2019, the interest rate was 7.08% , while the interest rate for Direct Subsidized and Unsubsidized Loans to students was 4.53% .
Interest rates for federal student loans are fixed, meaning they stay the same over the entire term of the loan. You generally can’t transfer a Parent PLUS Loan to your child down the line, but your child may be able to apply for student loan refinancing later on and, if they qualify and it makes sense to do so, use it to pay off the loan.
To apply for a Parent PLUS Loan, you typically need to fill out an online application at StudentLoans.gov . However, some schools have a different process and require you to request a loan through the institution’s financial aid office.
StudentLoans.gov has a list of all schools that allow you to apply through the website. As for any federal aid, you can only apply once your child has filled out the Free Application for Federal Student Aid (FAFSA ®). When the loan is disbursed, you’ll have to pay a loan fee, which was 4.236% of the loan amount disbursed between October 1, 2019, and October 2, 2020.
Federal Parent PLUS Loan Eligibility Requirements
Not everyone qualifies for a Parent PLUS Loan. In order to be eligible, you must be the biological or adoptive parent (or sometimes stepparent) of a dependent undergraduate student.
Grandparents and legal guardians can’t apply for a Parent PLUS loan unless they legally adopt the student. The student must be attending an eligible school at least half-time and meet other requirements for federal aid , including being a U.S. citizen or eligible non-citizen. There’s no specific income limit for eligibility, so it may be worth applying regardless of how much you make.
If you meet all the above criteria, there’s one more factor that could affect your ability to get a Parent PLUS Loan: your credit history. You may not be able to qualify for a Parent PLUS Loan if you have one of the following negative events in your record:
• You’ve had a bankruptcy, foreclosure, repossession, tax lien, wage garnishment, or a write-off of federal student aid debt in the past five years.
• You have more than $2,085 in combined debt outstanding that is 90 or more days delinquent or that has gone into collections or been written off in the previous two years.
Even if you have experienced one of these adverse events, however, you may still be able to qualify for a Parent PLUS Loan. One way that could help is to apply together with a qualified “endorser.” Similar to a cosigner, an endorser promises to pay back the loan if you fail to do so.
If the Department of Education agrees to give you a loan, you’ll have to complete loan-related counseling before you receive it. If you try and fail to get a Parent PLUS Loan, your child may be able to borrow Direct Unsubsidized Loans .
Other Options for Financing College
Sometimes, even taking out Parent PLUS Loans isn’t enough to cover the full cost of college. Or perhaps you’d like to explore other options for financing your child’s education. Here are a few alternatives for paying for college:
Grants and Scholarships
One great way to pay for college is “free money.” Grants, which are usually based on financial need, and scholarships, which are often based on academic merit, provide money for school that doesn’t need to be repaid.
Both types of aid can come from many different entities: the federal or state government, your child’s school, corporations, nonprofits, associations, and more.
Many opportunities are aggregated in search engines like FastWeb and Scholarships.com . You might want to start your search for grants and scholarships early to make sure your child doesn’t miss any deadlines.
Work-Study and Other Jobs
Students can earn money for school by applying for a Federal Work-Study gig or another part-time job during the school year or in the summers.
Work-study jobs are set aside for students with financial need and usually involve community service or jobs related to students’ academic studies, either on or off campus. The school’s financial aid office can let students know whether the institution participates and how to apply.
Beyond work-study, students can also apply for other paid gigs through a school’s job board or other job listings. Earning money while still in school could help reduce the amount that students and parents have to borrow to finance attendance.
Private Student Loans
Federal government loans are the best place to start for most borrowers, since they come with many important protections and often with lower interest rates. Students and parents who have exhausted their federal aid options may want to consider taking out loans from a private lender.
SoFi offers private student loans with competitive interest rates to undergrads, graduate students, and parents. You can borrow up to the full cost of attendance, including tuition and fees, room and board, books, and supplies.
SoFi doesn’t charge any fees related to private loans, meaning no origination fees or application fees. There are no prepayment penalties, and typically the faster you pay off your loan, the less you pay overall.
You can choose from several repayment options, and it’s quick and easy to apply online.
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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.