Parent PLUS Loans: A Comprehensive Guide

When it comes to financing college, there’s no doubt that parent PLUS loans are a popular choice for many parents. But oftentimes, parents may not know the intricacies of this loan program and how much of their hard-earned money they can actually borrow for their children’s education.

In this article, we will discuss what is a parent PLUS loan and how much you can actually borrow.

Parent PLUS loans are a type of federal student loan that is available to parents and guardians of dependent undergraduate students. These loans can be used to cover the cost of tuition, fees, room and board, books, and other expenses.

They have a fixed interest rate that is set each year by the Department of Education. For the 2021-2022 academic year, the interest rate is 5.3%. Parent PLUS loans also have a 4.228% origination fee that is deducted from the loan amount when the loan is disbursed.

What is a Parent PLUS Loan?

A parent PLUS loan is a federal student loan that is available to parents and guardians of dependent undergraduate students. PLUS loans can help pay for college or career school expenses, up to the cost of attendance minus any other financial aid the student receives.

So, their definition is pretty easy to understand. Also, the interest rate on a parent PLUS loan is fixed and generally lower than the rates on private loans. You can get a parent PLUS loan even if you have bad credit, but your interest rate may be higher than it would be if you had good credit.

But it’s important to remember that parent PLUS loans are not eligible for income-based repayment plans or loan forgiveness programs. However, you can prepay your parent PLUS loan at any time without penalty.

How Do Parent PLUS Loans Work?

When you take out a parent PLUS loan, the U.S. Department of Education (DOE) is your lender. The DOE pays the school directly for your child’s tuition and other eligible expenses, such as room and board, up to the total cost of attendance minus any other financial aid your child receives.

You are responsible for repaying your loan in full, plus interest, even if your child doesn’t graduate or is unable to find a job after school. If you can’t make your payments, you have several options for deferment or forbearance that can help you temporarily postpone or reduce your payments.

Another thing you can do is look into consolidation or refinancing your loan to get a lower interest rate or monthly payment. Just make sure you are able to repay the loan back.

How Much Can You Borrow Through the Parent PLUS Loan?

The federal parent PLUS loan is a great way to help your college student cover the cost of their education. But how much can you actually borrow through this program?

The answer depends on a few factors, including the cost of attendance at the school your child is attending and your own credit history.

Generally speaking, you can borrow up to the full cost of attendance minus any other financial aid that your child is receiving. So, if the total cost of attendance at your child’s school is 20,000$ and they are receiving 10,000$ in other financial aid, you could potentially borrow up to 10,000$ through the parent PLUS loan program.

Of course, whether or not you will be approved for the full amount you apply for is based on your credit history. If you have good credit, you are more likely to be approved for the full amount you request. But if you have bad credit, you may only be approved for a portion of the amount you request.

Benefits and Drawbacks of Parent PLUS Loans

A parent PLUS loan can be very useful for many parents who want to finance their kid’s education, but there are both pros and cons you need to think about as well.

Benefits:

• Higher limits
• Flexible repayment options
• Defer repayment until after graduation

Drawbacks:

• High-interest rates and fees
• Repayment limitations
• Accrues interest during deferment

Benefits

The interest rate on a parent PLUS loan is fixed, which means you will know exactly how much your loan payments will be each month. Additionally, you can choose to defer your loan payments while your child is in school, and for an additional six months after they graduate or leave school.

Another benefit of parent PLUS loans is that they offer flexibility in repayment plans. You can choose from a variety of repayment plan options, including income-based repayment plans. This can lower your monthly payment if you are having trouble making payments.

Drawbacks

There are some potential drawbacks to taking out a parent PLUS loan. First, the interest rate on these loans is generally higher than the interest rate on other federal student loans.

This means that you will end up paying more in interest over the life of the loan. Additionally, parent PLUS loans are not eligible for certain repayment plans, such as income-based repayment plans. In case you experience financial hardship in the future, you may not be able to lower your monthly payments.

When Do You Have to Start Repaying the Parent PLUS Loan?

Repaying a parent PLUS loan begins within 60 days after the final loan disbursement for the academic year. Parents can choose from several repayment plans, including standard, extended, and income-based repayment plans.

In case you have not paid off your parent PLUS loan in full by this time, you will be expected to make payments on the principal and interest of the loan.

These payments can be made in full or in part and can be deferred until after your child leaves school or graduates. So make sure you stay on top of your payments every month.

Can You Consolidate Parent PLUS Loans?

Federal parent PLUS loans can be consolidated with other federal student loans through the Direct Consolidation Loan program. However, parent PLUS loans cannot be consolidated with private student loans.

If you have both types of loans, you will need to consolidate your federal loans first and then refinance your private student loans. That’s why it’s best to make a payment plan and stick to it even before you sign the loan. In case you are having money problems, it’s best to contact your lender as soon as possible.

Are Parent PLUS Loans Right For You?

Parent PLUS loans can be beneficial in certain situations. For example, if you have good credit and can qualify for a low-interest rate, these loans can help you cover the cost of college without putting your child into too much debt. Additionally, parent PLUS loans can be used to fill the gap between financial aid and the total cost of attendance.

But remember that these loans come with a higher interest rate than other student loans. Also, you will be responsible for repaying the loan even if your child does not graduate or is unable to find a job after college. Additionally, these loans can negatively impact your credit score.

So, is this loan a good fit for you? That’s something you will have to decide. If you are okay with possible drawbacks, then go ahead. On the other hand, if you don’t want to end up in debt, then you should find an alternative.

Final Thoughts

Financing college can be a very expensive thing, especially in today’s time. That’s why many parents opt for a parent PLUS loan. Although they do ease the college tuition, they can be very expensive if you are not careful with payments.

That’s why we have made this article, where you can learn more about them and also learn how much you can actually borrow. In case you are interested in this type of loan, we suggest you contact your chosen lender and send your application.