Douglas Olsen
Parent PLUS loans are a type of federal loan that parents can take out to fund their child's education. They are designed to cover the cost of attendance for the child's school, minus any financial aid the student is receiving. The loan is made in the parent's name, and the parent is responsible for repaying it. While students can make monthly payments on behalf of their parents, the loan remains in the parent's name, and any missed payments will affect the parent's credit score. To transfer a Parent PLUS loan into the student's name, refinancing with a private lender is required, and not all lenders allow this. This guide will explore the options available to parents and students for managing Parent PLUS loans.
| Characteristics | Values |
|---|---|
| Purpose | Funding the education of the borrower's child |
| Borrower | Biological or adoptive parent of the child |
| Student | Enrolled or accepted as a regular student in an eligible program |
| Eligibility | No adverse credit history |
| Repayment | Higher interest rates than federal student loans |
| Loan fee | Percentage of the loan amount |
| Interest accrual | Accrues on the principal balance from day one of fund disbursement |
| Maximum loan amount | Cost of attendance for the child's school minus any financial aid received |
| Refinancing | Possible for the student to pay off the loan with a refinance loan |
| Repayment options | Standard repayment plan, graduated or extended repayment plans |
| Deferment | Available while the student is in school |
| Income-driven repayment plan | Income-Contingent Repayment |
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What You'll Learn
Parent PLUS loan requirements
A Parent PLUS loan is a federal education loan provided directly to parents of dependent students to help cover the costs of their child's college or trade school. The loan is made in the parent's name, and the parent is ultimately responsible for repaying the loan. Here are the requirements for a Parent PLUS loan:
Eligibility
To qualify for a Parent PLUS loan, you must be the biological or adoptive parent of the student. Grandparents and legal guardians can only apply if they have legally adopted the student. Additionally, the student must be enrolled or accepted as a regular student in an eligible program and be qualified for higher education. They must also maintain satisfactory progress while in school and be enrolled at least half-time.
Credit History
One of the most important factors in qualifying for a Parent PLUS loan is not having an adverse credit history. An adverse credit history is defined as having one or more debts totalling over $2,085 that are at least 90 days delinquent, placed in collections, or charged off within the last two years before the credit report date. However, even if you have a less-than-perfect credit history, you may still qualify by applying with an endorser or demonstrating extenuating circumstances and undergoing credit counselling.
Financial Aid Eligibility
To receive a Parent PLUS loan, you must also meet the general requirements for receiving financial aid. This includes being a U.S. citizen or eligible non-citizen and not having previous student loan defaults unless they have been resolved or consolidated into a federal direct loan.
It is important to note that Parent PLUS loans come with higher interest rates than federal student loans made directly to students, and interest begins accruing immediately on the principal balance. Parents can borrow up to the cost of attendance for their child's school, minus any financial aid the student receives.
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Student refinancing options
Students can refinance Parent PLUS loans in their name, but only through private lenders. To qualify, students will need a good credit score, typically in the high 600s, and a stable income. The main advantage of refinancing a Parent PLUS loan is to transfer the loan from the parent's name to the student's. However, there are some disadvantages to refinancing Parent PLUS loans. Firstly, the process is not reversible. By refinancing with a private lender, borrowers lose access to federal student loan benefits, such as income-driven repayment options and Public Service Loan Forgiveness (PSLF).
If a student does not qualify for refinancing, they can still make monthly payments on their parent's Parent PLUS loan. However, if they miss a payment, it will affect the parent's credit score. Additionally, the student will not be building their own credit history since the debt is in their parent's name.
Parents can also consider refinancing their Parent PLUS loan themselves. They may be able to qualify for a lower interest rate, which would result in paying less interest over the life of the loan.
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Loan repayment plans
Parent PLUS loans are made in the parent's name, and the parent is ultimately responsible for repaying the loan. However, students can pay off their parents' PLUS loans by refinancing the loan in their name. The student must first ensure they qualify for refinancing, as lenders consider factors like credit history, credit score, employment, and income. A credit score of at least 670 is typically required to qualify for refinancing and to obtain better interest rates.
If refinancing is not an option, students can still make the monthly payments on their parents' PLUS loans. However, it's important to note that if a student misses a payment, it will affect the parent's credit score and not the student's. Additionally, the student will not build their own credit history since the debt is in the parent's name.
Parents can also consider refinancing their Parent PLUS loans, which may allow them to qualify for a lower interest rate and pay less interest over the life of the loan.
Out of all the income-driven repayment plans, Parent PLUS loans only qualify for the Income-Contingent Repayment (ICR) plan. Enrolling in ICR requires consolidating the Parent PLUS loans. Repayment plan options include Standard, Graduated, Extended, or Income-Contingent.
It is important to note that Parent PLUS loans do not qualify for all income-driven repayment plans and loan forgiveness programs. Consolidating Parent PLUS loans with other federal student loans is not recommended, as it will result in the loss of certain options for non-Parent PLUS debt.
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Loan forgiveness
Parent PLUS loans are made in the parent's name, and the parent is responsible for repaying the loan. However, students can pay off their parents' PLUS loans by refinancing the loan in their name. The student must first ensure they qualify for refinancing, as lenders consider factors such as credit history, credit score, employment, and income.
While Parent PLUS loans have fewer protections and forgiveness options than other federal student loans, there are still paths to loan forgiveness. One option is the Public Service Loan Forgiveness (PSLF) Program, which forgives the remaining balance on Direct Loans after 120 monthly payments under a qualifying repayment plan while working at least 30 hours per week for the government or eligible nonprofit employers. Parent PLUS loan borrowers may be eligible for PSLF if they meet these requirements.
Another option is the Income-Driven Repayment (IDR) plan, specifically the Income-Contingent Repayment (ICR) plan. Under the ICR plan, payments are capped at 20% of the borrower's monthly discretionary income for 25 years, and any remaining debt is forgiven after that period. To qualify for ICR, Parent PLUS loans must first be consolidated into a Direct Consolidation Loan.
It is important to note that if a parent consolidates any federal loans, including Parent PLUS Loans, on or after July 1, 2026, they will be restricted to the new Standard plan. This will likely block them from pursuing PSLF, as they will not have access to a PSLF-qualifying repayment plan.
Additionally, Parent PLUS loan borrowers may explore state-specific student loan forgiveness programs, which are often tailored to various professions and industries, such as healthcare or education. Other potential paths to forgiveness include closed school discharge, bankruptcy, disability, and death.
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Credit history and score
When it comes to Parent PLUS loans, credit history and score play a significant role in determining eligibility and influencing the overall financial impact on the borrower. Here's what you need to know about credit history and score in the context of Parent PLUS loans:
Credit History
An important factor in qualifying for a Parent PLUS loan is not having an adverse credit history. The Department of Education conducts a credit check to ensure borrowers do not have a negative credit history. An adverse credit history is defined as having one or more debts totalling over $2,085 that are at least 90 days delinquent, placed in collections, or charged off within the two years before the credit report date. Additionally, there should be no records of bankruptcy, foreclosure, repossession, tax lien, wage garnishment, or federal student loan default in the five years preceding the credit report date.
If a borrower has an adverse credit history, they may still qualify by applying with an endorser or cosigner who has a positive credit history or by demonstrating extenuating circumstances and undergoing credit counselling.
Credit Score
While the Parent PLUS loan credit check does not include a review of credit scores, it is important to understand how these loans can impact your credit score. The credit check can result in a hard inquiry, which may temporarily lower your credit score by a few points. Additionally, a new account will be added to your credit report, initially lowering the average age of your credit accounts, which can also impact your score.
However, timely loan payments on your Parent PLUS loan can help build your credit score over time. Conversely, missing payments can lead to late fees and negatively affect your credit score. As payment history is the most influential factor in credit scoring models, a missed or delinquent payment can cause significant damage to your creditworthiness.
In summary, while credit scores are not a determining factor in obtaining a Parent PLUS loan, maintaining timely payments on the loan can positively impact your credit score, and late or missed payments can have negative consequences.
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Frequently asked questions
Yes, a student can pay off a Parent PLUS loan by refinancing it into their name. However, not all lenders allow transfers, and the student will need to meet the eligibility requirements, including a good credit score and a low debt-to-income ratio.
Refinancing the loan into the student's name can help build the student's credit history and remove the loan from the parent's credit report. It also gives the student more control over the loan and can provide access to lower interest rates or better loan terms.
If the student misses a payment, it will negatively impact the parent's credit score since the loan originated with the parent's credit history. Additionally, the student may not build their own credit history if the loan remains in the parent's name.
Yes, a student can make the monthly payments on a Parent PLUS loan without refinancing. However, the loan will still be in the parent's name, and any missed payments will affect the parent's credit score.
Parents can explore various repayment options for Parent PLUS loans, such as consolidation, enrolling in an Income-Contingent Repayment plan, deferment, forbearance, or loan forgiveness programs like Public Service Loan Forgiveness. It's important to compare different loan options and consider the potential impact on both the parent's and student's financial situations.
