Parent plus loan. Fill out a Direct PLUS Loan Application for Parents to assist you in covering the costs of your dependent undergraduate student’s education. This article explains what parent plus loan means and guides you through all the information you need to secure one.
What is Parent Plus Loan?
Parent PLUS loans are federal student loans issued directly to parents. The government takes a look at your credit and offers some flexibility in repayment options, and the ability to fill funding gaps.
After exhausting federal student loans to students, grants, and scholarships. For the 2021-2022 school year, the Parent PLUS Loan has a 6.28% interest rate PLUS an origination fee of 4.228%.
How do Parent PLUS Loans Work?
When families fill out the FAFSA, one of the options offered for funding is Parent PLUS Loans. These loans are meant to supplement school, state, and other federal financial aid offered.
Filling out the FAFSA is the first step in determining eligibility for a Parent PLUS Loan. A credit assessment is performed to determine any late payments and recent defaults.
Then, parents fill out a promissory note from the school itself. The form may be downloaded from the school’s financial aid office webpage or given to parents another way.
You’ll want to contact the school for their individual procedure.
Parent PLUS Loans are awarded for up to the full cost of attendance minus other financial aid students received. Funds are sent directly to the school.
Refunds for amounts beyond what is owed to the school are sent to the parent or to the student with the parent’s permission.
It is important to note that parents don’t have to borrow the full amount offered.
For instance, families may decide to pay some of the money offered in the form of PLUS loans with one or a combination of installment plans from the college, tax credits, student income, their own income, and private loans.
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What are the Parent PLUS Loan Eligibility Requirements?
The eligibility requirements for a Parent PLUS loan are fairly simple. You must be the biological or adoptive parent of a dependent undergraduate student enrolled at least half-time.
You generally must meet minimum credit standards, and the student must meet general eligibility requirements for financial aid.
It is important to note that grandparents and legal guardians aren’t eligible for parent PLUS loans unless they legally adopt the student.
Student eligibility requirements are also straightforward. Students must be U.S. citizens or eligible non-citizens, and not have previous student loan defaults that haven’t been resolved or consolidated into a federal direct loan.
Male students who are citizens and aged 18 to 25 need to register for the Selective Service System. Parents also must be U.S. citizens or eligible non-citizens.
If you don’t qualify, there are alternative ways to get funding that the federal government supplies.
What You Need to Know About the Credit Requirements
Here’s what you need to know about the credit requirements for a Parent PLUS Loan:
1. In the Two Years Before the Date Your Credit is Pulled
You can’t have one or more debts that are more than 90 days overdue that total more than $2,085. You also can’t have a collection or charge off.
2. In the Five Years Before the Date Your Credit is Pulled
You can’t have a loan default, a discharge of debts in bankruptcy, foreclosure, repossession, tax lien, wage garnishment, or a write-off of a federal student aid debt.
Your Options For Getting Parent PLUS Loans With Bad Credit
If your credit needs improvement, you may still be able to get a Parent PLUS loan by providing documentation and getting approved because of extenuating circumstances.
You can also get approved by getting a friend or family member with better credit to be an endorser.
Extenuating circumstances could be a variety of reasons that show that what is listed on your credit report doesn’t accurately describe your true ability to repay the loan.
For instance, a divorce decree showing you aren’t required to pay the debt or proof you’ve been making payments on the debt in question for at least 6 months.
Excessive medical bills that you can document are another potential circumstance that could impact the Department of Education revising their decision.
No matter what the reason behind the extenuating circumstances is, documenting any situation is important. And of course, make sure you are able to show how the situation has improved.
Note: Grandparents and legal guardians aren’t eligible for parent PLUS loans unless they legally adopt the student.
Am I Eligible For a parent PLUS Loan?
To receive a parent PLUS loan, you must
be the biological or adoptive parent (or in some cases, the stepparent) of a dependent undergraduate student enrolled at least half-time at an eligible school;
- Do Not have an adverse credit history (unless you meet certain additional requirements)
- Meet the general eligibility requirements for federal student aid
Note: Grandparents (unless they have legally adopted the dependent student) and legal guardians are not eligible to receive parent PLUS loans, even if they have had primary responsibility for raising the student.
How Much Can I Borrow?
The maximum PLUS loan amount you can borrow is the cost of attendance at the school your child will attend minus any other financial assistance your child receives. The cost of attendance is determined by the school.
Do I Have to Make Payments On My Loan While My Child is Still in School?
If you request a deferment, you will not need to make payments while your child is enrolled at least half-time and for an additional six months after your child graduates, leaves school, or drops below half-time enrollment.
If the school your child is attending requires you to submit your request for a parent PLUS loan at StudentAid.gov, you’ll have the option of requesting a deferment as part of the loan request process. You can also contact your loan servicer to request a deferment.
If you do not request a deferment, you will be expected to begin making payments after the loan is fully disbursed (paid out).
During any period when you’re not required to make payments, interest will accrue on your loan.
You may choose to pay the accrued interest or allow the interest to be capitalized (added to your loan principal balance) when you have to start making payments. Your loan servicer will notify you when your first payment is due.
Can I Still Receive a Parent PLUS Loan
A credit check will be performed during the application process. If you have an adverse credit history, you may still receive a parent PLUS loan through one of these two options:
1. Obtaining an endorser who does not have an adverse credit history. An endorser is someone who agrees to repay the parent PLUS loan if you do not repay it. The endorser cannot be the child on whose behalf you are borrowing.
2. Documenting to the satisfaction of the U.S. Department of Education that there are extenuating circumstances relating to your adverse credit history.
With either option 1 or option 2, you also must complete credit counseling for parent PLUS loan borrowers.
How do I Apply for a Parent PLUS Loan?
Go to the online Direct PLUS Loan Application for Parents.
Important: Most schools require you to apply for a Direct PLUS Loan online, but some schools have different application processes. This site has a list of schools that participate in the Direct Loan Program.
When you select your child’s school from the list, the site will tell you if the school has a different application process. In that case, check with the school’s financial aid office to find out how to request a parent PLUS loan.
Note: Before applying for a parent PLUS loan, make sure your child has filled out the FAFSA form.
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What Additional Steps Must I Take to Receive My Loan?
If you are eligible for a parent PLUS loan, you will be required to sign a Direct PLUS Loan Master Promissory Note (MPN), agreeing to the terms of the loan.
Contact the financial aid office at the school your child is planning to attend for details regarding the process at that school.
If you’re taking out parent PLUS loans for more than one child, you’ll need to sign separate Direct PLUS Loan MPNs for the loans you receive for each child.
Other Than Interest, is There a Charge for this Loan?
Yes, there is a loan fee on all Direct PLUS Loans. The loan fee is a percentage of the loan amount and is proportionately deducted from each loan disbursement.
The percentage varies depending on when the loan is first disbursed, as shown in the chart below.
How Will I Receive My Loan?
The school will first apply parent PLUS loan funds to the student’s school account to pay for tuition, fees, room and board, and other school charges.
If any loan funds remain, your child’s school will give them to you to help pay other education expenses for the student.
With your authorization, the school can pay the remaining loan funds directly to the student. Get more information about receiving aid.
What Happens After I Receive My Loan?
After you receive your parent PLUS loan, you will be contacted by your loan servicer (you will repay your loan to the loan servicer). Your loan servicer will provide regular updates on the status of your parent PLUS loan.
What Types of Loan Repayment Plans are Available?
Parent PLUS borrowers are eligible for the following repayment plans:
- Standard Repayment Plan
- Graduated Repayment Plan
- Extended Repayment Plan
Note: Parent borrowers can become eligible for an additional repayment plan—the Income-Contingent Repayment Plan—by consolidating their parent PLUS loans into a Direct Consolidation Loan.
What if I have Trouble Repaying my Loan?
If you are unable to make your scheduled loan payments, contact your loan servicer immediately. Your servicer can help you understand your options for keeping your loan in good standing.
For example, you may wish to change your repayment plan to lower your monthly payment or request a deferment or forbearance that allows you to temporarily stop or lower the payments on your loan.
Can My Loan Ever be Forgiven (Canceled) or Discharged?
Under certain conditions, you may be eligible to have all or part of your loan forgiven (canceled) or discharged. Find out about loan forgiveness, cancellation, and discharge.
How Adding a Parent PLUS Loan Endorser Works
An endorser is the federal government’s term for a cosigner, a person who’s willing to be a co-borrower on the loan, so the person whose credit might not be established yet or may not be as good can borrow the money.
Pros of Getting an Endorser:
- You’ll get the rest of the money needed for your student’s cost of attendance for that school year.
- You’ll have time to improve your credit before borrowing for future years.
- If the endorser has good enough credit, you may also be able to have them cosign a private student loan instead. Then you can remove their name from the private loan, provided you meet the rules for cosigner release.
Cons of Getting an Endorser:
- You may not be able to afford the amount you are approved for.
- You’re asking another person to be responsible for the loan in addition to you this year. However, you can make a decision to prioritize paying off this loan first.
- Having enough income to afford repayment is not a requirement. Whether or not you are approved, especially with an endorser, has nothing to do with affordability.
- If you are approved because of extenuating circumstances or because of an endorser, expect to complete PLUS loan credit counseling. It usually takes 20 to 30 minutes in total and must be completed in one sitting.
When Your Student Can Get Approved for Extra Student Loans
Be cautious of getting an endorser if rejected for Parent PLUS loans. A dependent student whose parents don’t qualify for PLUS loans can receive up to $9,500 in loans instead of $5,500.
This may not be enough to cover all expenses. That’s when families may want to consider transferring to a more affordable school or getting an endorser on a federal loan or cosigner on a private one.
Parent PLUS loan eligibility summary
Families are eligible for Parent PLUS loans if the parent doesn’t have an adverse credit history, the student is in college at least half-time, and both the student and the parent meet general federal student loan eligibility requirements.
Adverse credit history has two different standards based on whether the debt is within two years or within five years.
Not getting approved based on adverse credit history can be challenged via documented extenuating circumstances that show the Department of Education why you had credit issues and why you are now credit-worthy.
Adding an endorser, the federal government’s version of a cosigner with better credit may help you get approved. The endorser will be as legally responsible for the loan as you are.
If you are rejected for Parent PLUS loans, your student may be eligible for more student loans at a lower interest rate.
The only difference is it may not be for as much money, and your student could still have to find other methods for filling the remaining financial aid gaps.
Parent PLUS Loans Interest Rates
Parent PLUS loan interest rates may be a shock to families who are used to paying rates for undergraduate federal student loans. While undergraduate loans to students are currently issued at a rate of roughly 4.5%, rates for Parent PLUS loans are roughly 7.1%.
Now think about how much more you can borrow with a Parent PLUS Loan versus a traditional undergraduate student loan.
While federal student loans are generally capped for dependent students at $31,000 for an entire undergraduate degree, Parent PLUS loans are capped by the total cost of attendance minus other sources of financial aid.
Is There Any Way to Reduce the Interest Rate on Education Loans Issued to Parents?
Yes. While it’s generally encouraged to borrow federal student loans before private loans, PLUS loans are a bit different because of the likelihood of getting a lower interest in the private market if you have good credit.
Generally, private student loans don’t have an origination fee, a fee to borrow the loan on top of interest. Parent PLUS loans, however, do.
This fee is charged even if you pay off the loan the same day. While a 1.1 percent fee that is charged on federal undergraduate student loans may be barely noticeable, the current origination fee is 4.2 percent about 4 times the rate students pay.
Do Parent PLUS Loan Rates Ever Decrease?
Yes. They are over a half percent lower for the 2019 / 2020 academic year than they were for last year. Interest rates and origination fees can change on July 1 each year. That means interest rates and fees could be different each year you borrow.
Once issued, the interest rate is fixed and never changes. The only time it does is if you receive the 0.25 percent discount for enrolling in automatic monthly payments.
Is Parent PLUS Loan Interest Ever Subsidized by the Department of Education?
No. Subsidized student loans are education loans where the Department of Education pays the interest on the loan while the student is in school and under certain economic and other circumstances.
This loan type is only available to students who meet the financial need criteria.
Summary of Parent PLUS Loan Interest Rates
Parent PLUS loan interest rates are much higher than interest rates for student loans. Currently, the difference is over 2 percent.
Private student loans issued to parents or students may have a better interest rate than PLUS loans. Parents with good credit should compare shops.
An origination fee is an additional charge on top of the interest rate. The current fee is over 4 percent. Generally, private student loans don’t add this expense to borrowing costs.
Interest rates can be lower or higher for new Parent PLUS loans in future years. Rates can change, up or down, every year on July 1.
Once issued, interest rates don’t change with the exception of a .25 discount for direct debit.
Parent PLUS Loans Repayment Options
One of the biggest perks to Parent PLUS loans is that some of the same repayment plans available on federal student loans also apply to parents.
Parent PLUS Repayment Options
Here’s what you need to know about your Parent PLUS repayment options.
Parent PLUS loans are approved on an annual basis, but they are distributed based on school terms such as quarters or semesters.
Without asking for a deferment, a payment break for in-school status, and other economic circumstances, repayment begins after the final disbursement for that academic year.
Parents can request deferment for each academic year while their student is enrolled at least half-time.
Upon graduation or separation from school, parents get the same six-month grace period as a student borrower does before payments start.
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Which Plans Can you Qualify For Without Income Verification
1. Without income verification, you can qualify for either a standard 10-year repayment plan, an extended repayment plan, or a Parent PLUS consolidation loan.
Consolidation means you are combining all of your loans into a single loan. Then, you can potentially choose a repayment plan for up to 30 years to keep payments low.
While payments may be lower, keep in mind you’ll actually be paying more over the life of the loan if you extend the term.
Let’s say you borrow $60,000 in Parent PLUS loans over the course of four years with an average interest rate of 7.1 percent. The payment on a 10-year standard repayment plan is $700 monthly.
If you increase the payment time to 25 years on an extended repayment plan, the payment drops to $428. On a Parent PLUS loan consolidation repayment plan for 30 years, payments could be around $400.
Remember, you can always repay student loans early without penalty, so it doesn’t hurt to choose a longer, more affordable repayment option and make extra payments.
It’s very common for borrowers to send in just a few extra dollars monthly to reduce the balance and the interest charged. Ten dollars per month or more added to your monthly payment can reduce months to years off your total repayment time frame.
It is important to note that consolidation is a term for combining all loans into one loan, generally after graduation or the student’s graduation. You can choose other plans for repayment such as income-driven ones after you consolidate your loans.
2. The income-driven repayment plan available to parents is called the income-contingent plan.
The payment can be higher than other plans available to students BUT it still allows you to make lower monthly payments if you qualify and you may also be eligible for the Public Service Loan Forgiveness program after 10 years of on-time payments.
In order to qualify for the income-contingent plan, it’s best to consolidate Parent PLUS loans to one federal direct loan after you finish all borrowing for your student or students.
How Public Service Loan Forgiveness Works
It is possible to get some Parent PLUS loan forgiven via the Public Service Loan Forgiveness (PSLF) program when choosing the income-contingent plan, provided the plan is still available when you finish borrowing.
The additional qualification for PSLF is based on your employment. To get an idea as to whether you could qualify, call the number on the PSLF employer certification form.
Payment Breaks Available for Economic Reasons
In addition to income-contingent and deferment options, parents can qualify for temporary breaks from payments called forbearance in case of economic difficulty for a variety of reasons. Approval is generally up to the servicer of your loan or loans.
Transferring Parent PLUS Loans isn’t Possible
You can’t transfer the responsibility of Parent PLUS loans to students. If the goal is to have the student ultimately be responsible for the debt, consider cosigning a private student loan for them.
Most private student loans have a cosigner release where you can be removed after the student makes 12 to 24 on-time payments.
Parent PLUS Loan Consolidation Options
There are also options to consolidate your PLUS loan with a private company or bank. Only consider offers where the interest rate is lower, you can afford the payment, and if you have zero chance of qualifying for PSLF.
That said, be wary of advertisements or phone calls that seem too good to be true like wiping out your debt altogether.
Do your homework and only call numbers listed on a reputable lender’s website and perform a web search to make sure it isn’t part of an identity theft scam to gather your personal information.
Repayment Plan Options Summary
Here is a replacement plan option summary:
1. Parent PLUS loan repayment begins 60 days after final disbursement for that academic year. Disbursements are made based on school terms.
2. If parents are approved for deferments each year, repayment may not begin until 6 months after the student’s graduation.
3. Parents must consolidate their loans to have a chance at qualifying for Public Service Loan Forgiveness.
4. The income-contingent repayment plan is the income-driven repayment option available for parents.
5. The student can’t take over the loan.
Frequently Asked Questions
Here are some frequently asked questions and answers:
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