Parent PLUS Loan – As a parent, financing a child’s education can be a daunting task, especially when it is combined with tuition, housing, and other associated costs. The federal government has provided several options to help parents support their children’s higher education expenses and one of the most prominent ones is the Parent PLUS Loan.
The Parent PLUS loan allows parents to borrow money to cover any gaps between the cost of attendance and the financial aid their child has already received. In a way, it provides both financial aid and relief to the parents who are trying to help their children secure a degree. With this financial aid providing value, it is still very important to fully understand the terms, conditions, and responsibilities associated with this type of loan before applying.
What is a Parent PLUS Loan?
The Parent Plus Loan is a federal student loan offered by the government to parents of dependent undergraduate students. This financial tool allows these parents to help pay for college or career school.
Unlike other federal student loans that are taken out by the student, Parent PLUS Loans are in the parent’s name, which makes the parent responsible for repayment. Additionally, the loan is part of the Direct Loan Program and offers a fixed interest rate with flexible repayment terms.
Eligibility Criteria for Parent PLUS Loans
To be eligible for a Parent Plus Loan, both the parent and the student must meet certain requirements set by the U.S. Department of Education. Here are the eligibility criteria set:
Parent Eligibility
Relationship to the Student: The borrower must be the biological or adoptive parent of the student. In some cases, a stepparent may be eligible as long as their information is included on the FAFSA (Free Application for Federal Student Aid).
Credit History: Additionally, the parent must not have an adverse credit history. This includes significant delinquencies, bankruptcy, foreclosure, or a default on previous loans.
However, parents with an adverse credit history may still be considered eligible if they obtain an endorser or demonstrate extenuating circumstances.
Citizenship: Another eligibility criterion is that the borrower must be a U.S. citizen or eligible non-citizen.
Student Eligibility
Here are the eligibility criteria set for the students of the parents:
Dependent Status: The student must be a dependent undergraduate who was enrolled at least half-time in an eligible school.
FAFSA Submission: The student must have completed the FAFSA, which will determine the eligibility for other types of financial aid. This is before even considering a Parent PLUS Loan.
These are the eligibility criteria that have been set for both the parent and the student looking to get the loan. For you to be able to get the loan amount you need, you need to meet the criteria standards that have been set.
How to Apply for a Parent PLUS Loan
The process of applying for a Parent PLUS Loan is both straightforward and simple as long as you are taking the right steps. These are the steps to follow on how you can apply for the loan:
Complete the FAFSA
Before you apply, the student must first complete the FAFSA. This form is a determining factor that influences the student’s eligibility for federal financial aid, including grants, scholarships, and other loans. Also, this loan is meant to the additional costs that aren’t covered by other financial aid.
Apply for the Parent PLUS Loan
Once the student has filled out and completed the FAFSA, the parents can proceed to apply for a Parent PLUS Loan online through the Federal Student Aid website. Also, the application process will involve you providing personal and financial information, as well as consenting to a credit check.
Undergo a Credit Check
Your credit check is a crucial factor in this loan application process. The Department of Education will review the parent’s credit history to determine eligibility. However, if the parent has an adverse credit history, they might be affected but they are still eligible to apply. They can do so by qualifying by obtaining a co-signer or documenting extenuating circumstances.
Sign the Master Promissory Note
Once the loan is approved, the parent will need to sign a Master Promissory Note (MPN). This is actually a legal document that outlines the terms of the loan, which includes the borrower’s responsibility for repayment.
Loan Disbursement
With the MPN signed, the loan funds are disbursed directly to the student’s school to cover tuition, fees, and other expenses. Any remaining funds are refunded to either the parent or student to be used for other educational costs.
Repayment Options for Parent PLUS Loans
The repayment of a Parent PLUS Loan begins immediately after the loan is fully disbursed. However, there are several options available to manage the repayment process. They include:
Standard Repayment Plan
Under the Standard Repayment Plan, the parents can pay a fixed amount each month for up to 10 years. Additionally, this option results in you getting the lowest total interest paid over the life of the loan.
Graduated Repayment Plan
The Graduated repayment plan starts with a lower monthly payment that gradually increases every two years. Then, this plan spans up to 10 years and is ideal for parents who expect their income to rise over time.
Extended Repayment Plan
This is another type of repayment plan that allows parents to stretch out the payments over 25 years, either with a fixed or graduated payment. Moreover, this option results in you making lower monthly payments, but it increases the total amount of interest paid.
Deferment and Forbearance
When it is time for repaying, the parents can request deferment or forbearance to temporarily postpone or reduce their payments under certain circumstances. These circumstances may include the likes of financial hardship or unemployment. However, the interest continues to accrue during these periods.
Key Considerations Before Taking Out a Parent PLUS Loan
Before you actually apply for a Parent Plus Loan, you must consider several factors that can impact your financial health and the student’s future. These factors include:
Impact on Retirement Savings
Parents should consider how taking on a Parent PLUS Loan may affect their ability to save for their own retirement. Hence, you must balance the desire to support your child’s education with the need to secure your financial future.
Loan Amount
You should only borrow the amount you really need. Furthermore, you should remember that Parent PLUS loans only cover the gap between the cost of attendance and other financial aid. So, borrowing more than necessary can lead to you accruing unnecessary debt.
Repayment Responsibility
Another important factor that should be considered is that the parents are solely responsible for repaying the Parent PLUS Loan. This decision remains unchanged even if the student doesn’t complete their education or has difficulty finding employment after graduation.
Interest Rates
The interest on Parent Plus loans begins accruing as soon as the funds are disbursed. It is really wise for you to start making payments as soon as possible to reduce the total amount of interest paid over the life of the loan.
Frequently Asked Questions
Here are some frequently asked questions you can check out:
Can I transfer a Parent PLUS Loan to my child?
No, a Parent PLUS loan cannot be transferred to the student. As mentioned, the parent remains the borrower and is responsible for repayment. However, what the student can do is take out a private loan to refinance the Parent PLUS Loan in their name after graduation.
Can I borrow more than one Parent PLUS Loan?
Yes, you can take out multiple Parent PLUS Loans for the same student or for different children. However, it is more advisable for you to be mindful of your total borrowing amount and gauge your repayment responsibilities.
Is there a limit to how much I can borrow with a Parent PLUS loan?
There really is no aggregate limit to how much you can borrow with a Parent PLUS loan. However, you should only borrow up to the cost of attendance minus any other financial aid the student receives.