A Parent PLUS Loan is a federal loan borrowed by parents on behalf of a dependent undergraduate student. The lender on a Parent PLUS Loan is the U.S. Department of Education. With a Parent PLUS Loan, the parent is the borrower, not the student. Unlike other federal loans, Parent PLUS Loans have essentially no limits. A parent can borrow funds up to the cost of attendance, less any financial assistance received.
What are the key benefits of Parent PLUS Loans?
There are quite a few benefits when it comes to Parent PLUS Loans:
Borrow As Much As You Need
Unlike other types of federal student loans, Parent PLUS Loans have virtually no limits when it comes to borrowing. You can borrow up to the cost of attendance minus any other financial aid received. Just remember to be careful to not take on too much debt. Since there’s virtually no cap on borrowing, you run the risk of taking out more loans than you can afford to pay back. Make sure your budget can handle repayment before you start by using our student loan calculators.
Fixed Interest Rate
Parent PLUS Loans come with a fixed interest rate. So, even when rates rise, your rate will stay the same as when you took out the loan throughout the life of the loan. Currently as of July 13th, a Parent PLUS Loan fixed interest rate is at 4.264%. To get the most up to date loan rate check here.
Soft Credit Check
A major benefit when you refinance Parent PLUS Loans is that you can check your new interest rate before you apply. Having a soft credit check is great because your credit score won’t be impacted and you have the ability to shop around and see if refinancing your Parent PLUS Loan makes sense.
Flexible Repayment Options
Parents can choose between the standard, extended or graduated repayment plan for a PLUS loan. Depending on which plan you choose to go with, you’ll have anywhere from 10 to 25 years to repay the loan. If you ever have trouble keeping up with your payments, you have the option of switching to a different repayment plan, taking a deferment or requesting a forbearance. If you choose deferment, it means that you won’t owe a payment for a set period of time and interest won’t accrue. Forbearance also lets you postpone payments but the interest on the loan keeps adding up.
Your Child Can Build Credit
You have the ability to transfer your Parent PLUS Loan to your child. If you choose to take this route, your child can build credit and raise their credit score if they make on-time payments on the loan.
The interest you pay towards a student loan, including a PLUS loan, may score you a break at tax time. Currently, the most you can deduct is either $2,500 or the total amount of student loan interest you paid, whichever is less. The amount of the deduction you’re eligible for is based on your income. The full deduction is available to single filers earning less than $60,000 and married couples making less than $125,000. The deduction is phased out completely at $75,000 and $155,000 respectively.
What are some things to be aware of with Parent PLUS Loans?
When considering Parent PLUS Loans, you should be aware of some drawbacks.
Your Usual Federal Loan Perks are Trimmed
The usual perks you typically receive on federal loans like special repayment programs, public service loan forgiveness, deferral and forbearance will not be available anymore.
Another thing to consider is the origination fee on a Parent PLUS Loan. An origination fee is a fee that is charged by a lender for processing a loan application and agreement. The origination fee for a Parent PLUS Loan as of July 13th is 4.264%. To give you a quick example, if you took out a $25,000 loan, your origination fee would be $1,066.00. Origination fees are not uncommon for loans, but they are something you should factor in and be aware of.
No More Grace Periods
Typically on a student loan you have 6 months after you graduate to begin paying off your loan, but with a Parent PLUS Loan that isn’t the case. With a PLUS loan, parents are expected to start making payments within 60 days of the loan being disbursed. You can, however, request a deferment period if your student is still enrolled at least half-time or for a period of six months following their graduation.
What it comes down to
Parent PLUS Loans can be a great option for parents looking to help their children pay for college. These loans are relatively easy to get and you have the ability to borrow as much as you need.
While there are great benefits, Parent PLUS Loans also have some potential disadvantages, such as an origination fee, no grace periods and an interest rate that could be higher than one you could get from another lender. Make sure to evaluate your financial situation and make sure that taking on debt makes sense.