The Ins and Outs of Parent Plus Loans


From the 1989-90 school term to the 2011-12 term, Parent PLUS loans grew by 385%, according to a Nerdwallet study. The increase in reliance on Parent PLUS loans could put millions of retirement accounts in jeopardy, as they struggle to pay high-interest loan balances at the end of their careers.

Details you need to know before taking out a PLUS loan for your child.

Qualifying

Parent PLUS loans require good credit but have no loan limits or income requirements.   

Applying for the loan

When students max out Direct student loans (both subsidized and unsubsidized), the next level of federal loan is the PLUS loans, available to parents of dependent undergraduate children. The student and parent must complete the FASFA form and a separate application. Biological, adoptive, and step parents currently in a marriage with a biological parent, qualify for the loan.

Rates and Fees

PLUS loans have the same interest, set on July 1, each year, much like Direct loans. However, rates and fees are much higher, with interest for the 2017-18 school year set at 7% and a 4.276% origination fee.

Interest Accrual

Parents may defer payments much like direct loans, delaying the start date until six months after the child leaves school. Interest capitalizes on the account raising balances if the parent does not make interest payments during deferment.

Loan Limits

Parents may borrow up to the full cost of attending school. This amount includes turion, fees, books, supplies, room, and board, along with personal expenses. The school calculates the total cost of attendance and subtracts grants, scholarships and direct loans. Parents may borrow any remaining balance without regard for financial need.

Parent PLUS loans offer a valuable way to meet funding gaps but can create hardships during repayment if not considered with caution.