Parent PLUS Loans: Everything you need to know
Parent PLUS loans, also known as Direct PLUS Loans are a type of student loan that are offered by the federal government. However, unlike Direct Stafford Loans, PLUS loans are taken out by parents to pay for their child’s postsecondary education.
In this guide, we’ll be talking about:
- Parent PLUS Loan Eligibility
- Parent PLUS Loan Deadlines
- Borrowing limits for PLUS Loans
- Direct PLUS Loan Interest Rates
- How to repay your Parent PLUS Loans
- Alternatives to PLUS Loans
Overall, PLUS loans are less ideal than Direct Stafford Loans because they tend to have higher interest rates and less favorable repayment options.
Parent PLUS Loan Eligibility
To be eligible for Direct PLUS Loans, students must complete and submit the FAFSA. Similar to Direct Stafford Loans, students must be attending a postsecondary college or certificate-granting program on at least a half-time basis.
Next, parents will have to complete a supplementary PLUS Loan application on the Department of Education website. One component of the application process is a credit check, as credit history is a component of PLUS Loan consideration.
The only other requirement is that the person taking out the PLUS Loan must be a biological or adoptive parent. In some cases a stepparent will be eligible to take out the loan, but this is determined on a case-by-case basis.
Parent PLUS Loan Deadlines
Because the Parent PLUS Loan requires the FAFSA, students should follow the appropriate FAFSA deadline (which can very depending on your college and when you apply).
The FAFSA opens up on October 1st and closes on June 30th, so you will have a wide window to get your FAFSA submitted.
Remember, the Parent PLUS loan includes the extra step of the supplementary application, so keep that in mind!
Borrowing limits for PLUS Loans
Unlike subsidized and unsubsidized Federal Direct Stafford Loans, there is no borrowing limit for PLUS loans. This means that families can borrow up to the cost of attendance (minus any other financial aid and scholarships that you receive).
This can be useful if a student’s financial aid package does not completely cover everything or if you can’t meet the college’s Estimated Family Contribution.
However, students and parents should be wary of taking on too much debt. Just because you can take out loans does not mean that it is a good idea. Remember, you will have to pay back your student loans upon graduation.
The Department of Education has a useful Loan Simulation Tool to help you estimate repayment on potential student loans. This is a great way to see what your student loan debt will look like as far as future monthly payments.
Direct PLUS Loan Interest Rates
The rate for PLUS loans taken out between on or after July 1, 2020, and before July 1, 2021 is 5.30%. PLUS Loans are offered at a fixed interest rate which is set by the federal government each year.
How to repay your Parent PLUS Loans
Like other federal student loans, Parent PLUS loans are eligible for a variety of repayment plans including:
- Standard Repayment
- Graduated Repayment Plan
- Extended Repayment Plan
- Revised Pay As You Earn Repayment Plan
- Pay As You Earn Repayment Plan
- Income-based Repayment Plan
- Income-sensitive Repayment Plan
Different repayment plans will have different tradeoffs depending on your goals and financial situation.
Alternatives to PLUS Loans
PLUS Loans can be a financial option if you have a financial aid gap or if your family is not able to afford the Estimated Family Contribution. However, there are some alternatives that students and families can consider instead of PLUS Loans including: