Federal Parent PLUS Loan Introduction

By Elaine Rubin Updated on December 30, 2020

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Before parents borrow from the Parent PLUS Loan program, it is best if their child exhausts eligibility for Direct Loans first, since these student loans have lower interest rates and fees.

Some parents borrow Parent PLUS Loans to make sure their children don’t take on too much student loan debt. But remember, nothing stops parents from helping their children with their student loan payments. Borrowing Direct Loans before Parent PLUS Loans will save the family money.

Parent PLUS Loan Interest Rates

Interest rates on PLUS Loans are fixed. The current interest rates for new PLUS Loans in 2020-2021 are 5.30% for parents of undergraduate students (Parent PLUS Loans) and for graduate students (Grad PLUS Loans). 

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Note: Interest rates on Parent PLUS and Grad PLUS Loans are the same.

Parent PLUS Loan Fees

Loan disbursement and default fees are effectively a form of up-front interest. Assuming a 10-year repayment term, a 4% fee is the equivalent of an increase in the interest rate of about seven-eighths to one percentage point. Assuming a 30-year repayment term, a 4% fee is the equivalent of an increase in the interest rate of about one-third to half a percentage point. 

The relative impact of a fee is greater with a shorter repayment term or if the borrower prepays the loan, since the fee will be amortized over less time. This is why borrowers who plan to pay off a loan early may wish to avoid up-front fees, if possible.

How to Apply for a Parent PLUS Loan

The first step in the application process is for the student to file the Free Application for Federal Student Aid (FAFSA®) at StudentAid.gov. The FAFSA is a requirement to borrow from the Parent PLUS Loan program.

Parent PLUS Loan Application

You, as the parent, will not need to complete the Direct PLUS loan application. You will need to log into Student.Aid.gov with your FSA ID.

Complete the Direct PLUS loan application. You will need to identify how much you would like to borrow, and authorize a credit check. The U.S. Department of Education will then conduct a credit check to determine if you have adverse credit. If you are determined to have adverse credit, you can then:

• file an extenuating circumstances appeal, or
• apply with a cosigner.

Parent PLUS Loan Master Promissory

The Master Promissory Note is the official loan agreement that describes the terms and conditions for repaying the loan. The same parent who completes the PLUS Loan Request must sign the MPN before the loan funds can be sent to the school. The MPN is also available on your StudentAid.gov account.

Note that an MPN is good for 10 years, so you may only need to sign this on the first application. However, in subsequent years, each request for a Parent PLUS Loan will start a new credit check.

If two different parents would like to apply for Parent PLUS Loans, each must complete this application process separately. If requesting funds in the same year for the same student, the total combined amount may not be higher than the school’s Cost of Attendance.

Guidelines for requesting a Parent PLUS Loan:

• Same parent who will complete and sign the Master Promissory Note (MPN) should request the loan.
• Parent, not the student, must request the loan.
• A parent must sign into the StudentAid.gov with their FSA ID. If you don't already have one, you will need to create your own FSA ID.

Parent PLUS Loan Eligibility

Parent PLUS Loans are available only to the parents of dependent undergraduate students. The parents of independent undergraduate students are not eligible for the Parent PLUS Loan.

If a dependent student’s parents are divorced, both parents can take out separate Parent PLUS Loans with separate Master Promissory Notes (MPNs). But the combined Parent PLUS Loans cannot exceed your student’s cost of attendance minus other financial aid received.

Who Can Borrow From the Parent PLUS Loan Program

Eligibility for the Parent PLUS Loan does not depend on demonstrated financial need.

Parent PLUS Credit

Eligibility for a Parent PLUS Loan does not depend on the borrower’s credit score or debt-to-income ratio. However, the borrower of a Parent PLUS Loan must not have an adverse credit history, as defined by the U.S. Department of Education.

What is Adverse Credit History?

• A current delinquency of 90 or more days on more than $2,085 in total debt; or
• More than $2,085 in total debt in collections or charged off in the past two years (before the date of the credit report); or
• Default, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of federal student loan debt in the past five years (before the date of the credit report)

Denied a Parent PLUS Loan

If you are found to have adverse credit history, you may still be able to borrow from the Parent PLUS Loan program. You have two options: submit a successful extenuating circumstances appeal for an exceptional circumstance, or reapply with a cosigner who does not have an adverse credit history.

If you want to appeal the decision, you must submit a request to appeal the decision and provide information regarding your denial decision. If successful, you may be required to completed loan counseling prior to receiving the Parent PLUS loan funds.

If you would like to apply with a cosigner who does not have adverse credit, the cosigner would need to complete an endorser application.

Now, if neither of these options works for you, your denial of a Parent PLUS Loan would actually make your dependent undergraduate student eligible for independent undergraduate student Stafford loan limits. Meaning, they will have access to additional loan funds they can borrow under their name to help pay their own college costs.

Increased Loan Limits with a PLUS Denial

If a dependent student’s parent is denied a Parent PLUS Loan, the student becomes eligible for the same Direct Unsubsidized Loan limits available to independent students.

If either parent later qualifies for a Parent PLUS Loan, the student’s loan limits return to the dependent student level. (Loan amounts already received under the additional Direct Unsubsidized Loan limits will not count against the lower loan limits.)

Other Requirements for a Parent PLUS Loan

The parent and dependent student must also satisfy the general eligibility requirements for federal student aid and federal student loans.

• Students must be enrolled in school on at least a half-time basis
• Male students must have registered with the Selective Service (not required for father)
• Students and parents must be U.S. citizens or nationals, permanent residents, or eligible noncitizens
• Students and parents can’t be in default on a federal student loan
• Parent PLUS Loan proceeds must be used for educational purposes

Parent PLUS Loan Interest Rate

The interest rates on Parent PLUS Loans are fixed and do not change over the life of the loan. The interest rate for the 2020-2021 academic year is 5.30%.

Every year on July 1, interest rates are reset based on current market rates.

The interest on a Parent PLUS Loan starts to add up (accrue) from the date the loan is first disbursed. (Generally, federal student loans are sent to schools 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.

Parent PLUS Loan Origination Fee

The current origination fee on Parent PLUS Loans is 4.228%. Fees are deducted from each loan disbursement. Borrowers can ask the college financial aid office to increase the amount borrowed to cover the fees.

Parents should compare the costs and benefits of PLUS Loans and private student loans. Parents with excellent credit may qualify for private student loan interest rates that are lower than the current PLUS Loan rate.

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Parent PLUS Loan Limits: How Much Can You Borrow

The annual loan limit on a Parent PLUS Loan is the full annual cost of attendance minus other financial aid received by the student. There is no aggregate (cumulative) loan limit.

The cost of attendance includes:

• Tuition and fees
• Room and board
• Books
• Supplies
• Equipment
• Transportation
• Miscellaneous personal expenses

Parent PLUS Loan Refund Check

If the Parent PLUS Loan creates a credit balance on the student’s account, parents have the option to accept the refund or have the refund issued to the student. You can specify the recipient of leftover funds during the application process, or contact the school to update this information.

Parent PLUS Loan Deferment

Repayment on a Parent PLUS Loan normally begins no later than 60 days after the loan is fully disbursed. However, borrowers can defer repayment of a Parent PLUS Loan while the student is in school and during a six-month grace period after the student graduates or drops below half-time enrollment status. Parent PLUS Loans can 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.

Parent PLUS Loan Grace Period

Parent PLUS loans don’t technically have a grace period because they enter repayment within 6- days after the loan is fully disbursed. However, the in-school deferment option (explained above) can be used to postpone payments.

Parent PLUS Loan Repayment

The standard repayment term on 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 student loans.

Eligible Repayment Plans

Parent PLUS Loans are not eligible for public service loan forgiveness, unless the loans are consolidated and repaid under an ICR plan.

A parent’s Parent PLUS Loans cannot be consolidated with the student’s federal student loans, since the borrowers are different. However, a parent can consolidate their own federal student loans with Parent PLUS Loans, since these loans have the same borrower.

Student loan refinancing allows you to combine private and/or federal student loans into a new loan, or just refinance one student loan, depending on your needs.

Refinancing may reduce your interest rate, monthly payment, or allow you to remove a cosigner. You have the option to choose your lender based on the loan which has the most beneficial terms for you. Some private student refinance lenders may also allow you to transfer the loan debt to your child, it will require your child to qualify for a refinance loan. We work with many private student loan refinance lenders, check out our partners to see what types of terms may be available.

A Parent PLUS Loan is discharged if:

• Borrower becomes totally and permanently disabled
• Borrower dies
• Student dies

Recommendations

1. File the FAFSA every year to maintain eligibility for student aid.
2. Dependent students should take out Direct Subsidized Loans (if eligible), and Direct Unsubsidized Loans before parents consider taking out a PLUS Loan.
3. Compare the costs and benefits of Parent PLUS Loans vs. private student loans. Parents with excellent credit may qualify for private student loan interest rates that are lower than the current PLUS Loan rate.
4. If a parent is denied for a PLUS Loan due to an adverse credit history, the student should contact the school’s financial aid office to request a higher limit on the Direct Unsubsidized Loan.

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• Variable Rates: 1.13% APR - 11.23% APR. Fixed Rates: 4.25% APR - 12.59% APR. Lowest rates shown include the auto debit discount.¹
• Choose from multiple repayment options, including no payments while in school¹
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This loan is for undergraduate students at participating degree-granting schools. Students who are not U.S. citizens or U.S. permanent residents must reside in the U.S., attend a participating school in the U.S., apply with a creditworthy cosigner (who must be a U.S. citizen or U.S. permanent resident) and provide an unexpired government-issued photo ID to verify their identity. Applications are subject to a requested minimum loan amount of $1,000. Current credit and other eligibility criteria apply.

¹Interest is charged starting when funds are sent to the school. With the Fixed and Deferred Repayment Options, the interest rate is higher than with the Interest Repayment Option and Unpaid Interest is added to the loan's Current Principal at the end of the grace/separation period. Payments may be required during the grace/separation period depending on the repayment option selected. Variable rates may increase over the life of the loan. Advertised variable rates reflect the starting range of rates and may vary outside of that range over the life of the loan. Advertised APRs assume a $10,000 loan to a freshman with no other Sallie Mae loans. The borrower or cosigner must enroll in auto debit through Sallie Mae to receive a 0.25 percentage point interest rate reduction benefit. This benefit applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month. It may be suspended during forbearance or deferment, if available for the loan.

²Although we do not charge a penalty or fee if you prepay your loan, any prepayment will be applied as outlined in your promissory note-first to Unpaid Fees and costs, then to Unpaid Interest, and then to Current Principal.

³Loan amount cannot exceed the cost of attendance less financial aid received as certified by the school. Sallie Mae reserves the right to approve a lower loan amount than the school-certified amount. Miscellaneous personal expenses (such as a laptop) may be included in the cost of attendance for students enrolled at least half time.

⁴This promotional benefit is provided at no cost to borrowers with new loans that disburse between May 1, 2021 and April 30, 2022. Borrowers are not eligible to activate the benefit until July 1, 2021. Borrowers who reside in, attend school in, or borrow for a student attending school in Maine are not eligible for this benefit. Chegg Study® offers expert Q&A where students can submit up to 20 questions per month. No cash value. Terms and Conditions apply. Please visit http://www.chegg.com/legal/smtermsandconditions for complete details. This offer expires one year after issuance.

Information advertised valid as of 5/25/2021

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¹Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.

²This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

³As certified by your school and less any other financial aid you might receive. Minimum $1,000.

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¹Get a cash reward on each new Discover undergraduate and graduate student loan when you earn at least a 3.0 GPA (or equivalent) in any academic period covered by the loan. Limitations Apply. Visit DiscoverStudentLoans.com/Reward for terms and conditions.

²Lowest APRs shown for Discover undergraduate loans are available to the most creditworthy applicants, and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.

The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable margin percentage. For variable interest rate loans, the 3-Month LIBOR is 0.250% as of April 1, 2021. Discover Student Loans may adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Our lowest APR is only available to applicants with the best credit. The APR will be determined after an application is submitted. It will be based on credit history, the selected repayment option and other factors, including a cosigner’s credit history (if applicable). If a student does not have an established credit history, the student may find it difficult to qualify for a private student loan on their own or receive the lowest advertised rate. Learn more about Discover Student Loans interest rates at DiscoverStudentLoans.com/Rates.

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Offered terms are subject to change.  Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate (ACH discount) by agreeing to automatic payment withdrawals once in repayment, which is reflected in the APR shown for Full Principal and Interest Repayment Plan loans. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 0.99 as of April 25, 2017.

Under the Full Deferment Repayment Plan option, interest and principal may be deferred while a borrower is enrolled in school on at least a half time basis, and for an additional six month grace period (up to a maximum of 60 consecutive months) following (i) graduation, (ii) termination of enrollment, or (iii) if a borrower ceases enrollment on at least a half-time basis, at which time interest is capitalized and a 60-month repayment period (5-year term), a 120-month repayment period (10-year term) or a 180-month repayment period (15-year term) begins. There are three other Repayment Plan options available, an Interest Only Repayment plan, in which principal will be deferred and payments made on interest only during the same period described above after which payments will increase to full principal and interest payments, a Flat Repayment plan, in which payments of $25 will be made during the same period described above after which payments will increase to full principal and interest payments, and a Full Principal and Interest Repayment plan, in which payments will begin immediately after disbursement. A borrower's actual APR may vary depending on the repayment option selected by the borrower. The dollar amount of the origination fee is based on the amount borrowed and will be added to the outstanding loan balance upon disbursement. Loans are not offered or endorsed by the educational institution that you are attending. CommonBond is not affiliated with any educational institution.

For more information, visit https://commonbond.co/disclaimers#note3.

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