What are Federal Parent PLUS Loans and How to Apply?

By Elaine Rubin Updated on July 1, 2021

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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 2021-2022 are 6.28% 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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