Table Of Contents
- Parent PLUS loans have a high borrowing limit, fixed interest rate, and the potential for forgiveness.
- However, a credit check is required to qualify, and you will be subject to an origination fee and a fairly high interest rate.
- It makes sense to borrow a Parent PLUS loan if you plan to pursue student loan forgiveness. It does not make sense to borrow if you receive a stronger loan offer elsewhere.
- If you don’t qualify for a Parent PLUS loan, you can add an endorser with a strong credit history to the loan for better chances at qualifying.
The Pros And Cons Of Parent PLUS Loans
Parent PLUS loans might seem like a strong option, but there are both pros and cons to consider.
| Pros | Cons |
|---|---|
| • High borrowing limit • Fixed interest rate • Several repayment options • Eligible for forgiveness | • Credit check required • Easy to borrow too much • Origination fee • Interest may be higher than other options • Parent is legally responsible for repayment • You may struggle to pay them back |
There is a high borrowing limit. You can borrow up to the cost of attendance minus other financial aid received. This can be helpful if your child doesn’t receive a sufficient financial aid package.
You’ll have a fixed interest rate. All federal student loans have fixed interest rates, meaning the rate will remain the same throughout the life of the loan. This is beneficial for borrowers who are uncomfortable with the fluctuation of a variable-rate loan.
There are various repayment options. Parent PLUS loans are eligible for the following repayment plans:
- Standard Repayment: Fixed payments made for up to 10 years
- Graduated Repayment: Starts with lower payments that increase every two years for up to 10 years
- Extended Repayment: Payments are made for up to 25 years
While these options provide flexibility, the longer the loan term, the more you’ll pay in interest. Evaluate the loan terms carefully before selecting one.
They may be eligible for forgiveness. Parent PLUS Loans are eligible for Public Service Loan Forgiveness and Income Contingent Repayment Forgiveness.
Cons
A credit check is required. If you have an adverse credit history, you may not qualify for a Parent PLUS loan. You can, however, add an endorser — or someone who does not have an adverse credit history — to the loan to help you qualify.
It’s easy to borrow too much. Because you can borrow up to the cost of attendance, it’s easy to think “Why not?” and borrow the entire amount when it might not be necessary. Make sure to pursue other options, such as scholarships and grants, before considering a student loan.
There is an origination fee. For loans disbursed on or after October 1, 2022, and before October 1, 2023, there is a 4.228% origination fee. The fee amount is deducted from the disbursed amount.
For example, if you had a $10,000 Parent PLUS loan and disbursed the entire balance during the first semester, a $422.80 fee would be deducted. Then, a total of $9,577.20 would be disbursed to the school.
The interest rate might be higher than other options. For loans disbursed on or after July 1, 2022, and before July 1, 2023, the interest rate is 7.54% — which is fairly high. You may qualify for a private student loan with a lower interest rate.
The parent borrower is solely responsible for repaying the loan. Even though the loan is used to cover the cost of a child’s education, you — the parent or guardian — are the sole borrower. Regardless of whether your child is involved in repayment, you are legally responsible for the loan. If you happen to miss a payment, it will impact your credit score, not your child’s.
You may struggle to pay them back. Parents that borrow Parent PLUS loans shoulder around $29,600 in student loan debt after their student completes their education. Even after 10 years, more than half of the initial balance remains unpaid. If you aren’t prepared to make consistent surplus payments, you may wind up paying back the loan for quite some time.
When Parent PLUS Loans Do And Don’t Make Sense
Parent PLUS loans aren’t always the best option. Before borrowing one, consider whether it makes sense to do so.
Parent PLUS Loans are a smart decision if:
- You plan to pursue student loan forgiveness.
- You don’t qualify for private student loan options.
- The private student loans you do qualify for have higher interest rates.
- You plan to use a repayment plan unique to federal loans, like a graduated or extended repayment plan.
You should opt for another loan option if:
- You don’t plan to pursue student loan forgiveness, and;
- You qualify for a lower interest rate elsewhere.
How To Pay Back A Parent PLUS Loan
After your Parent PLUS loan is disbursed, repayment will begin.
Choose Whether To Defer Or Begin Making Payments
You can choose to either begin repaying the loan immediately or apply for deferment. Deferment will allow you to postpone payments until the student graduates.
If you can afford to make payments, do so — it’ll save you money on interest. Only apply for deferment if you’re unable to afford loan payments while your child is in school.
Pick A Repayment Plan
Then, select the repayment plan that works best for you:
- Standard repayment is best for borrowers that want to pay off their debt as quickly as possible.
- Graduate repayment is best for borrowers that have a lower salary and can’t make full payments now but expect that to change as their income rises.
- Extended repayment is best for borrowers that cannot afford to make payments on a standard or graduated repayment plan.
If you plan to pursue loan forgiveness, double-check for repayment requirements. Some programs may require you to select a specific repayment plan.
Start Making Payments
The sooner you’re able to start making payments, the sooner you’ll be out of debt. If you’re concerned about accidentally missing a payment, select the auto-payment option. Payments will be automatically removed from your checking account each month.
Frequently Asked Questions (FAQs)
How Do I Know if A Parent PLUS Loan Makes Sense for Me?
If you plan to pursue student loan forgiveness, a Parent PLUS loan likely makes sense as opposed to a private student loan. Otherwise, use a student loan calculator to determine which loan offer makes the most sense.
What Should You Do If You’re Denied a Parent PLUS Loan?
If you’re denied a Parent PLUS loan, consider reapplying with an endorser. An endorser is an individual who agrees to repay the loan should you become delinquent. Typically, they have a better credit history than you, which increases your chances of qualifying.
