Janice Lozano
Parent PLUS loans are a type of loan that parents can take out to supplement school, state, and other federal financial aid offered to their child. The loan amount is determined by the total cost of attendance minus any financial aid the child has received. Repayment options for Parent PLUS loans include standard, graduated, extended, or income-contingent plans. Consolidating Parent PLUS loans with other federal student loans is not advisable, as Parent PLUS loans do not qualify for all income-driven repayment plans and loan forgiveness programs. However, consolidating the loan will make borrowers eligible for the Income-Contingent Repayment (ICR) plan. Repayments for Parent PLUS loans typically begin 60 days after disbursement, but borrowers can request deferment until after their student graduates.
| Characteristics | Values |
|---|---|
| Interest rate | 8.94% for loans disbursed between July 1, 2025, and June 30, 2026 |
| Fee | 4.228% for loans disbursed on or after October 1, 2020 |
| Discount | 0.25% for setting up automatic monthly payments |
| Maximum annual limit | $20,000 per child |
| Lifetime limit | $65,000 per student |
| Repayment start | 60 days after disbursement |
| Deferment | Available for each academic year while the student is enrolled at least half-time |
| Grace period | Six months after the student leaves school |
| Consolidation | Eligible for the Income-Contingent Repayment (ICR) plan |
| Rehabilitation | After 9 months of reasonable payments, the default note is removed from the credit report |
| Credit check | Performed to determine late payments and recent defaults |
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What You'll Learn
Applying for a Parent PLUS loan
To apply for a Parent PLUS loan, parents must meet several requirements to qualify for a federal Direct PLUS loan. Here is a step-by-step guide on applying for a Parent PLUS loan:
Start with FAFSA
Fill out the Free Application for Federal Student Aid (FAFSA). This is where you will first see the option for a parent PLUS loan. These loans are meant to supplement school, state, and other federal financial aid offered.
Eligibility
To qualify for a parent Direct PLUS loan, your child must be an undergraduate student enrolled in an eligible college at least half-time. You also have to pass a credit check or you may have to apply with a cosigner. You and your child will need to meet the general eligibility requirements for receiving federal student aid, including demonstrating financial need, being a US citizen or eligible non-citizen, and being enrolled in a qualifying program or school.
Apply Online
You can apply directly online. Be sure to download and sign the Master Promissory Note (MPN), which outlines your agreement to repay the loan. If you have any questions on how to apply or sign the MPN, contact the school's financial aid office.
Choose Loan Amount
Parent PLUS loans are awarded for up to the total cost of attendance minus any financial aid your child has received. You don't have to borrow the full loan amount. Using a mix of savings, payment plans, tax credits, or other student loans can help you cover the costs without borrowing more than necessary.
It's important to understand the terms and conditions of Parent PLUS loans, including interest rates and fees, before applying. Private student loans may offer lower rates, especially for parents with excellent credit, so it's worth comparing your options.
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Repaying the loan
Repaying a Parent PLUS loan starts with signing the Master Promissory Note (MPN), which outlines the agreement to repay the loan. Repayment can begin before the student graduates, with the first payment due 60 days after the final disbursement for that academic year. Disbursements are made based on school terms, and interest accrues during this time. There are no prepayment penalties, so it is possible to start paying back the loan earlier if desired.
There are several repayment plan options for Parent PLUS loans, including Standard, Graduated, Extended, and Income-Contingent. The Income-Contingent Repayment (ICR) plan is the only income-driven repayment plan available for Parent PLUS loans, and it requires consolidating the loan. The minimum payment on ICR is $5. Consolidation is a faster process than rehabilitation, which may be important for regaining eligibility for federal student aid. However, consolidation will not remove the default note from your credit report, and it is important to consider any potential loss of benefits. For example, consolidating Parent PLUS loans with other federal student loans is not advisable, as it will result in the loss of income-driven repayment plans and loan forgiveness programs for the non-Parent PLUS debt.
To avoid default, it is important to act quickly. Default can lead to consequences such as wage garnishment, collection fees, and negative impacts on credit history. If a loan has defaulted, rehabilitation can be achieved through nine months of reasonable payments based on income, after which the default note will be removed from the credit report. This can only be done once per loan.
It is worth noting that Parent PLUS loans are generally more costly and less flexible than federal loans made directly to students, with higher interest rates and origination fees. Private student loans may offer lower rates, especially for parents with excellent credit. Additionally, parents may only borrow a Parent PLUS loan if the dependent student has already taken out their maximum annual unsubsidized loan amount.
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Consolidating Parent PLUS loans
There are no costs or origination fees associated with consolidating Parent PLUS loans, and it may make some types of federal loans eligible for income-driven repayment plans. However, it's important to note that private loans are not eligible for federal consolidation. Consolidating Parent PLUS loans can also help borrowers regain eligibility for federal student aid, although the default will remain in the credit history.
One specific strategy for consolidating Parent PLUS loans is called "double consolidation." This involves consolidating Parent PLUS loans twice to create a new Direct Loan that is eligible for all available income-driven repayment (IDR) plans and Public Service Loan Forgiveness (PSLF). To work, borrowers must consolidate a previously consolidated loan that included a Parent PLUS loan with a non-Parent PLUS loan. The final Direct Loan resulting from double consolidation is eligible for all IDR repayment plans, including the new Saving on a Valuable Education (SAVE) plan, which offers lower monthly payments.
Another option for consolidating Parent PLUS loans is to take out a Direct Consolidation Loan. This option makes the loan eligible for an income-contingent repayment plan, which extends the repayment term and caps monthly payments at a percentage of the borrower's discretionary income.
While consolidating Parent PLUS loans can provide benefits such as simplified repayment and access to income-driven repayment plans, it's important to consider potential drawbacks. For example, consolidating may result in higher future interest charges, as any outstanding interest at the time of consolidation gets added to the loan principal. Additionally, borrowers cannot take advantage of an improved credit score or income to qualify for lower interest rates after consolidating. Therefore, it is essential to carefully consider the pros and cons before deciding to consolidate Parent PLUS loans.
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Comparing Parent PLUS loans with private student loans
There are two primary college borrowing options for parents: federal Parent PLUS loans and private student loans. Here is a comparison of the two to help you decide which option is best for you:
Interest Rates
Parent PLUS loan interest rates do not depend on the applicant's creditworthiness. Instead, the interest rates and fees are set by the Education Department, based on when the loan is originated. PLUS loans have the highest rates of any type of federal student loan. Private parent loan interest rates, on the other hand, can be fixed or variable and are based on the borrower's creditworthiness. Parents with excellent credit and a low debt-to-income ratio will qualify for the lowest student loan rates available, which may be much better than Parent PLUS loan rates. Private loans may offer lower rates than federal PLUS loans for well-qualified applicants.
Repayment
Parent PLUS loans are typically repaid through monthly payments. Repayment begins 60 days after the final disbursement for that academic year. Interest accrues while the student is in school, but you can choose to pay it off as you go. You can request deferment for each academic year while your student is enrolled at least half-time. After your student leaves school, you'll have a six-month grace period before payments start. It is important to note that you cannot transfer repayment responsibility for Parent PLUS loans to the student.
Private student loans are also commonly repaid through monthly payments. Most private student loans allow students to apply for cosigner release, where the cosigner can be removed if the student makes 12 to 24 on-time payments and meets all other eligibility requirements.
Other Benefits
Parent PLUS loans have federal protections, such as in-school deferment and student loan consolidation to achieve income-contingent repayment. If you borrowed a Parent PLUS loan and are a public servant or nonprofit worker, you may still be eligible for the Public Service Loan Forgiveness program, or PSLF. Private student loans, on the other hand, often offer more competitive interest rates and no origination fees.
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Deferring Parent PLUS loan payments
Eligibility for Deferment:
To qualify for deferment, your undergraduate student must be enrolled at least half-time in school. You can also seek deferment for up to six months after your child graduates or drops below half-time enrollment. This is known as in-school deferment, and it mirrors the grace period offered for other undergraduate student loans.
Applying for Deferment:
Unlike undergraduate loan deferments, Parent PLUS loan deferment doesn't happen automatically. You must complete an application and submit it to your loan servicer. You can apply for deferment when filling out the Free Application for Federal Student Aid (FAFSA) by submitting information to your child's school. Alternatively, you can fill out a separate application on StudentAid.gov.
Interest Accrual:
It's important to note that interest will continue to accrue during the deferment period. This means that while you pause payments, your overall loan balance will increase. As a result, you may end up paying more in the long run.
Alternative Options:
If you're considering deferment due to financial difficulties, there are alternative options to explore. One option is to pay the interest while your child is in school to minimize the overall cost. You can also explore income-driven repayment plans, such as the Income-Contingent Repayment plan, which caps monthly payments at 20% of your discretionary income.
Deferment vs. Forbearance:
Another option is forbearance, which allows you to pause or reduce payments for a short period, usually up to 12 months. Forbearance is typically requested during short-term financial hardships, and interest accrues during this time as well. While deferment and forbearance provide temporary relief, they can increase your overall loan balance.
Remember, deferring Parent PLUS loan payments can provide short-term relief, but it's important to weigh the benefits against the potential long-term costs.
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Frequently asked questions
Students cannot pay off Parent PLUS loans, and repayment responsibility cannot be transferred to the student. If the goal is for the student to be responsible for the debt, consider cosigning a private student loan.
Start by filling out the Free Application for Federal Student Aid (FAFSA). You can then apply directly online and download and sign the Master Promissory Note (MPN), which outlines your agreement to repay the loan.
The interest rate for Parent PLUS loans disbursed between July 1, 2025, and June 30, 2026, is 8.94%. There is also a 4.228% fee for loans disbursed on or after October 1, 2020. These rates can change annually on July 1, but once you take out the loan, the rate never changes.
