Introduction to Federal Parent PLUS Loans

The Federal Parent PLUS loan is borrowed by parents of undergraduate students to help the student pay for his or her college education. The Federal Parent PLUS loan offers a low, fixed interest rate and flexible loan limits.

Nearly $10 billion in Federal Parent PLUS loans were disbursed in 2012-2013, down from $11 billion in 2011-2012. The number of parent borrowers decreased by 19 percent due to eligibility changes implemented by the U.S. Department of Education.

Before parents borrow from the Federal Parent PLUS loan program, it is best if the student exhausts eligibility for the Federal Stafford loan first, since the Federal Stafford loan has lower interest rates and lower fees. In 2011-2012, 3.4% of dependent undergraduate students whose parents borrowed from the Federal Parent PLUS loan program did not borrow from the Federal Stafford loan program. Of those who borrowed from the Federal Stafford loan program, 7.1% borrowed less than the effective maximum. While some parents may wish to limit their children's debt burden, nothing stops parents from helping their children with their student loan payments. Borrowing Federal Stafford loans before Federal PLUS loans will save the family money.

Source of Federal Parent PLUS Loans

Federal Parent PLUS loans are made by the U.S. Department of Education's direct loan program, more formally known as the William D. Ford Federal Direct Loan Program. Similar loans were previously made also by the Federal Family Education Loan (FFEL) program, sometimes called the guaranteed student loan program. Congress ended the FFEL program on June 30, 2010. Since July 1, 2010, all new federal education loans, including the Federal Parent PLUS loan, have been made through the direct loan program.

How to Apply for Federal Parent PLUS Loans

View this Chart: PLUS Loans vs. Private Loans
To obtain a Federal Parent PLUS loan, parents should contact the financial aid office at the student’s college or university or request a PLUS loan at studentloans.gov. The same parent who completed or will complete the Master Promissory Note (MPN) should request the loan. The Federal Parent PLUS loan must be requested by the parent, not the student. The parent will need the same Federal Student Aid PIN that was used to sign the FAFSA to log in to request the Federal Parent PLUS loan.

Eligibility

Federal Parent PLUS loans are available only to the biological or adoptive parents of a dependent undergraduate student. The parents of independent undergraduate students are not eligible for the Federal Parent PLUS loan. If a dependent student's parents are divorced, both parents may borrow from the Federal Parent PLUS loan, assuming that each completes a separate Master Promissory Note (MPN), but the combined Federal Parent PLUS loans cannot exceed the loan limits. A stepparent can borrow from the Federal Parent PLUS loan, but only for as long as the stepparent is married to the student's parent. Grandparents, aunts, uncles and other relatives are not eligible to borrow from the Federal Parent PLUS loan program unless they have legally adopted the student. Legal guardians are not eligible to borrow from the Federal Parent PLUS loan program.

The student must file the Free Application for Federal Student Aid (FAFSA) for the parents to be eligible to borrow from the Federal Parent PLUS loan program, starting with the 2011-2012 academic year. However, eligibility for the Federal Parent PLUS loan does not depend on demonstrated financial need, so even wealthy parents may borrow from the Federal Parent PLUS loan program. The FAFSA is a prerequisite for the Federal Parent PLUS loan (and also the unsubsidized Federal Stafford loan) to ensure that the student applies for and receives any grants and other need-based student aid before relying on loans.

Eligibility for a Federal Parent PLUS loan does not depend on the borrower's credit scores or debt-to-income ratios.

The borrower of a Federal Parent PLUS loan must not have an adverse credit history. An adverse credit history occurs when the borrower has a current delinquency of 90 or more days on more than $2,085 in total debt, when the borrower has more than $2,085 in total debt in collections or charged off in the past two years or when certain derogatory events, including bankruptcy discharge, repossession or foreclosure, have occurred within the past five years.

If a parent has an adverse credit history, the parent may still borrow from the Federal Parent PLUS loan program with an endorser (cosigner) who does not have an adverse credit history. The student on whose behalf the parent is borrowing may not serve as the endorser on the parent's Federal Parent PLUS loan.

If a dependent student's parent is denied a Federal Parent PLUS loan, the student becomes eligible for increased unsubsidized Federal Stafford loan limits, the same loan limits that are available to independent students. These loan limits are $4,000 higher during each of the freshman and sophomore years and $5,000 higher during each of the junior and senior years. The cumulative limits are $26,500 higher. However, if either parent subsequently qualifies for a Federal Parent PLUS loan, subsequent disbursements of the student's unsubsidized Federal Stafford loans will be based on the regular loan limits for dependent students. (Loan amounts already received under the additional unsubsidized Federal Stafford loan limits will not count against the lower loan limits.)

The parent and student must also satisfy the general eligibility requirements for federal student aid and federal education loans. In particular, the student must be enrolled on at least a half-time basis for the parent to borrow from the Federal Parent PLUS loan program. The student, if male, must also have registered with Selective Service, but the student's father is not required to have registered with Selective Service. The student and parents must also be U.S. citizens, permanent residents or eligible noncitizens. The student and parent cannot be in default on a federal education loan or have failed to repay or make satisfactory arrangements to repay a federal grant overpayment.

Interest Rates and Fees

The interest rates on Federal Parent PLUS loans are fixed and do not change over the life of the loan. Current interest rates for the 2014-2015 academic year are 7.21%. These are among the lowest interest rates available to borrowers for unsecured loans without a credit check.

Each year's new loans have a new fixed rate, pegged to the 10-year Treasury yield plus a margin. The new interest rates for loans disbursed from July 1 to June 30 are based on the last 10-year Treasury auction in May. The interest rate formulas and caps are shown in this table.

Loan Program Interest Rate Formula Interest Rate Cap Current Interest Rate (2014-2015)
Federal Parent PLUS Loan 10-Year Treasury + 4.60% 10.5% 7.21%

The interest on a Federal PLUS loan is unsubsidized and begins accruing from the date the loan is first disbursed. (Generally, federal education loans are disbursed in two or more disbursements, except at colleges and universities that have a low default rate.) If the borrower does not pay the interest as it accrues, it will be capitalized (added to the loan balance), increasing the size of the loan.

The fees on Federal Parent PLUS loans are about 4%. (The fees have increased slightly due to federal budget sequestration. The current fee is 4.292% and may change.) Fees are deducted proportionately from each loan disbursement. Borrowers may ask the college financial aid office to increase the amount borrowed to cover the fees, up to the annual loan limit.

Parents may be able to deduct up to $2,500 per year in interest paid on the Federal Parent PLUS loan through the student loan interest deduction. This deduction is implemented as an above-the-line exclusion from income, and, thus, may be claimed even if the parent doesn't itemize on his or her federal income tax return.

Loan Limits

The annual loan limit on a Federal Parent PLUS loan is the full annual cost of attendance minus other financial aid received by the student. There is no cumulative loan limit. The cost of attendance includes tuition and fees, room and board, books, supplies, equipment, transportation and miscellaneous personal expenses.

In-School Deferment and Grace Period

Repayment on a Federal Parent PLUS loan normally begins no later than 60 days after the loan is fully disbursed. However, borrowers may defer repayment of a Federal Parent PLUS loan first disbursed on or after July 1, 2008, while the student is in school and during a six-month grace period after the student graduates or drops below half-time enrollment status. Federal Parent PLUS loans may also be deferred while the parent borrower is enrolled on at least a half-time basis in an eligible program. However, interest continues to accrue during these deferment periods.

Repayment

The repayment term on Federal Parent PLUS loans is 10 years. However, borrowers may qualify for a longer repayment term if they consolidate the loans or have more than $30,000 in federal education loans with a single lender.

Federal Parent PLUS loans are eligible for standard repayment, extended repayment and graduated repayment. Federal Parent PLUS loans are not eligible for income-contingent repayment (ICR), income-based repayment (IBR) or pay-as-you-earn repayment (PAYER). However, if a Federal Parent PLUS loan entered repayment on or after July 1, 2006 and is included in a Federal Direct Consolidation loan, the consolidation loan may be eligible for income-contingent repayment (but not income-based repayment or pay-as-you-earn repayment).

Federal Parent PLUS Loans are eligible for public service loan forgiveness. However, Federal Parent PLUS loans are not eligible for ICR, IBR or PAYER, and the remaining debt after 10 years in standard repayment would be zero, leaving no principal and interest balance to forgive. However, the loophole allowing Federal Parent PLUS loans that enter repayment on or after July 1, 2006 to qualify for ICR if they are included in a Federal Direct Consolidation loan can yield some remaining debt to forgive after ten years of repayment under public service loan forgiveness.

A parent's Federal Parent PLUS loans may not be consolidated with the student's federal student loans, since the borrowers are different. However, a parent may consolidate the parent's federal student loans with Federal Parent PLUS loans borrowed by the parent, since these loans have the same borrower.

A Federal Parent PLUS loan is discharged if the borrower becomes totally and permanently disabled or dies or if the student dies.