Your child just graduated from high school: congratulations! That’s a huge achievement for both the new graduate and for you as a parent. But now comes the next big step in your child’s education — college.
College is more expensive than ever, and you may be considering helping your child with the bill. If so, you’re not alone. According to a survey by Sallie Mae, Parent borrowing accounts for 10% of the nation’s student loans. Plus, about 33% of parents said they’d help their children with student loan payments until they became financially stable.
As a parent, one of your options is to take out a Parent PLUS Loan to pay for school. Below, find out how Parent PLUS Loans work and learn about your alternatives, like private student loans.
What are Parent PLUS Loans?
Parent PLUS Loans are student loans offered by the federal government to parents who want to borrow money to pay for their child’s education.
Parent PLUS Loan eligibility
To qualify for a Parent PLUS Loan, you must be the biological or adoptive parent of a dependent undergraduate student enrolled at least half-time at an eligible school.
Unlike other federal student loans, Parent PLUS Loans do require a credit check. If you have an adverse credit history — such as if you have a history of bankruptcies — you may not be able to qualify for a loan unless you have a co-applicant.
Parent PLUS Loan interest rate and fees
PLUS Loans have the highest interest rates of any federal student loan. As of the 2018-2019 school year, the Parent PLUS Loan interest rate is 7.6%. It’s a fixed-rate loan, so the interest rate will never change over the course of your repayment.
PLUS loans do have disbursement fees. The loan fee is a percentage of your loan and is deducted from each loan disbursement. Loans disbursed on or after October 1, 2018 and before October 1, 2019 have a loan fee of 4.248%.
Parent PLUS Loan limits
If your child’s education is expensive, Parent PLUS Loans offer flexibility. You can borrow up to the total cost of attendance minus any other assistance your child receives, such as grants or scholarships.
Parent PLUS Loan repayment
Your PLUS Loans payment due dates start as soon as the loan is disbursed. However, if your child is enrolled at least half-time in school, you can request a deferment that lasts until six months after your child graduates.
During a deferment, interest will continue to accrue on the loan, but you won’t have to worry about making payments.
How to apply for a Parent PLUS Loan
To apply for a Parent PLUS Loan, you first need to complete the Free Application for Federal Student Aid (FAFSA).
Once you complete the FAFSA and your child receives a financial aid summary, you can proceed with the Parent PLUS Loan application, which you can complete online at StudentLoans.gov.
To complete the application, you’ll need to include how much you want to borrow, the school code and address of your child’s selected college, your child’s personal information and Social Security number, and your own personal and employer information.
Federal benefits offered by Parent PLUS Loans
As a form of federal loan, Parent PLUS Loans have several benefits over other kinds of parent student loans.
- Deferment and forbearance: If you face a financial hardship, such as a job loss or medical emergency, you can postpone making payments on your loans without entering into default. A deferment or forbearance gives you time to get back on your feet without worrying about your student loan payments.
- Eligible for alternative repayment plans: If you can’t afford your payments, Parent PLUS Loans are eligible for alternative payment plans that will reduce your monthly bill. PLUS Loans are eligible for graduated repayment and extended repayment plans. And, if you consolidate your loans with a Direct Consolidation Loan, they’re also eligible for income-contingent repayment.
- Qualifies for Public Service Loan Forgiveness: If you work for a non-profit organization or government agency, you could qualify for loan forgiveness after 10 years of service and making 120 qualifying payments under Public Service Loan Forgiveness (PSLF). For your Parent PLUS Loans to qualify for PSLF, you must first consolidate your loans with a Direct Consolidation Loan and sign up for an income-contingent repayment plan.
Parent PLUS Loans vs. Private Student Loans
While Parent PLUS Loans can be a useful tool, they’re not for everyone. If you have a stable income and solid credit history, you may be better off with a private parent loan. Here’s why:
1. Lower interest rates
If you have good to excellent credit, you may be able to qualify for a parent student loan with a much lower interest rate by working with a private lender rather than the federal government. If you qualify for a lower rate, that savings can be significant.
For example, let’s say you needed to borrow $30,000 for your child’s college education. If you took out a Parent PLUS Loan with a 7.6% interest rate, you’d have a monthly payment of $358 and you’d repay a total of $42,921 over the course of 10 years.
But pretend you took out a private parent student loan instead and qualified for an interest rate of just 5.7%. Your monthly payment would be $326 — a $32 savings each month — and you’d repay just $39,069 over the 10-year repayment term. By opting for a private student loan instead of a Parent PLUS Loan, you’d save over $3,800.
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2. Flexible loan terms
Under a standard repayment plan with a Parent PLUS Loan, your payments are fixed over the course of 10 years. But with private student loans, you can get more flexibility. Most lenders offer repayment terms of 5, 10, or 15 years, so you can pick a term — and a monthly payment — that works for your budget. In general, the shorter the repayment term, the lower the interest rate.
3. No application or origination fees
Parent PLUS Loans have costly disbursement fees. By contrast, private student loans typically don’t charge any application or origination fees at all. By opting for a private loan, you could save hundreds of dollars at disbursement.
When Parent PLUS Loans make sense
When deciding between Parent PLUS Loans and private loans, it’s important to keep your unique situation in mind. While private loans offer unique perks and the potential for cost savings, they may not be right for you.
Parent PLUS Loans make sense in the following situations:
- Your income fluctuates: If your income isn’t stable or you have a job in a volatile industry, you may be better off with a Parent PLUS Loan. With federal loans, you can place your loans into deferment or forbearance and postpone making payments. Private loans typically don’t have that option.
- You have less-than-stellar credit: To qualify for the lowest rates on private loans, you need excellent credit. If your credit isn’t great, a federal Parent PLUS Loan may be a more affordable option.
- You plan on pursuing loan forgiveness: If you work for a non-profit or government agency, you may be eligible for loan forgiveness through PSLF, helping you save thousands of dollars.
Getting the best rates on a parent student loan
When it comes to borrowing for your child’s education, you have several different options available to you. Both Parent PLUS Loans and private parent loans have different benefits and drawbacks, so really think about what perks you’ll likely use and which option will give you the most savings.
If you decide that a private student loan is right for you, use Purefy’s Find My Rate tool to compare rates from multiple lenders at once.