*Updated March 8, 2019
The price of a college education in the United States has increased across the board in the past 10 years. Between the 2008-09 and 2018-19 academic years, the average published tuition and fee prices have risen, in 2018 dollars, as follows:
|Public two-year colleges||$930|
|Public four-year colleges and universities||$2,670|
|Private nonprofit four-year colleges and universities||$7,390|
The rising cost is forcing more and more parents to step in to help their children pay for college, and they often have to resort to loans. In November 2018, the Brookings Institution reported that at least 3.4 million people borrow Parent PLUS loans, and they owe nearly $90 billion (not including consolidated loans).
A Parent PLUS loan is a federal loan that’s available only to parents of dependent undergraduate students.
The average size of these loans is also getting bigger — it increased by 44% between the 2001-02 and 2016-17 academic years, according to the College Board.
If you’re a parent considering Parent PLUS loans, here’s what you need to know.
1. Who is your lender?
Parent PLUS loans are made through the William D. Ford Federal Direct Loan Program, so the U.S. Department of Education is your lender. But, Parent PLUS loans are serviced by nine loan servicing organizations/companies assigned to help the government manage the billing and other services for your loan, like MOHELA. You could have more than one servicer if you have multiple Parent PLUS loans.
2. Are you eligible for Parent PLUS Loans?
To qualify, you must meet ALL of the following requirements:
First, you must be either the biological or adoptive parent (or the stepparent) of a dependent undergraduate student who is enrolled at least half-time at an eligible school;
Second, you have to undergo a credit check and must not have an adverse credit history. But, if you have an adverse credit history, don’t lose heart. You may still qualify under certain circumstances (explained below).
Third, you (and/or your dependent student) must meet these general requirements:
- be enrolled at least half-time at an eligible school.
- show financial need, which will be assessed based on the data on your dependent student’s Free Application for Federal Student Aid (FAFSA) (if your student is applying for Direct Subsidized Loans only).
- be a U.S. citizen or U.S. national, OR fall under one of the following categories of eligible noncitizens who have:
- A green card;
- A Form I-94, “Arrival-Departure Record,” showing “Refugee,” “Asylum Granted,” “Cuban-Haitian Entrant,” “Conditional Entrant” (valid if issued before April 1, 1980), or “Parolee”;
- A battered immigrant status, or is the child of a person with battered immigrant status; or
- A T-Visa (for victims of human trafficking).
- have a valid Social Security Number (unless a citizen of the Pacific Freely Associated States — the Marshall Islands, the Federal States of Micronesia, and the Republic of Palau).
- be registered with the Selective Service (for male students, ages 18-25).
- be enrolled in an eligible degree/certificate program. Check with the school’s financial aid department to confirm eligibility.
- make Satisfactory Academic Progress (SAP) by maintaining a certain grade point average (GPA), taking a minimum number of credit hours per semester, and staying on track to complete degree in an acceptable time period. SAP standards vary from school to school.
- certify on FAFSA that: (1) you are not in default on a federal student loan and do not owe money on a federal student grant, and (2) you will use federal student aid only for educational purposes.
- have a high school diploma, GED, approved homeschool education, or an eligible career pathway program.
Once you’ve received Parent PLUS loans, be sure to maintain your eligibility as long as you need the loans. If you lose eligibility, you can take steps to regain it.
3. How do you apply for Parent PLUS loans?
First, your dependent student must fill out the FAFSA form. The FAFSA, which is free to fill out and submit, is used by current and prospective colleges to determine a student’s eligibility for various forms of financial aid. The FAFSA must be filled out every year if you and your dependent student need financial aid or loans. See here for more information on federal student loans.
Once the FAFSA is completed, you can apply online for Parent PLUS loans at StudentLoans.gov, where you will be asked to submit certain information, such as the school to which your dependent student is applying, the student’s information, and your personal and employment information. This information is sent on to the school, which will process your application and decide if you are eligible for a Parent PLUS loan.
Some schools, however, use a different application process. That information will be given to you once you select the school from the StudentLoans.gov list, in which case you should contact the school’s financial aid office to find out how to request a Parent PLUS loan.
In addition, you must complete a PLUS Master Promissory Note for the loan, which, essentially, is a legal document that makes it your responsibility (not your dependent student’s) to pay back all the Parent PLUS loans you receive, plus interest and fees.
The Parent PLUS application takes about 20 minutes, and must be completed in a single session.
4. What is the interest rate?
The interest rate is dependent on the date on which the loan is first disbursed or paid out. For loans first disbursed on or after July 1, 2018, and before July 1, 2019, the rate is 7.6%.
The interest rate is a fixed rate, meaning that the rate doesn’t change, so your monthly payments will always be the same amount. Knowing how much you need to pay each month will help you with your budget.
The interest rate is set every July 1 according to federal law.
5. Are there any other costs?
Parent PLUS loans come with a loan fee, which is a percentage of the loan amount and is dependent on the date on which the loan is first disbursed. For loans first disbursed on or after October 1, 2018, and before October 1, 2019, the percentage is 4.248%.
The loan fee is deducted from each loan disbursement, in proportion to the amount disbursed.
6. How much can you borrow?
Since Parent PLUS loans are meant to be used only for educational purposes, the maximum loan amount for an academic year is determined by the costs of your dependent student’s school minus other financial aid he or she gets.
Your dependent student’s school will determine the type of loan he or she gets, if any, and the actual loan amount.
7. How will you receive your loan?
The funds will go directly to your dependent student’s school account to be applied against tuition, fees, room and board, and other school charges. If there are extras, the school will send them to you, so you can pay other education expenses for your dependent student, or give them to your dependent student with your permission.
8. What if you have an adverse credit history?
As mentioned above, a credit check is required for Parent PLUS loans. When your credit is pulled, banks and institutions can see your credit history. While your loan approval is not contingent on your credit score, an adverse credit history could impact your application.
But, you may still qualify if you:
- Find an endorser, meaning another creditworthy individual who agrees to repay the loan if you fail to repay it; or
- Show evidence of extenuating circumstances for your adverse credit history to the Department of Education.
In addition, you must complete the PLUS Credit Counseling process, which will take about 20-30 minutes.
9. What if your application is turned down?
If your application is denied, your dependent student may become eligible for the same Direct Unsubsidized Loan limits available to independent students. So, your dependent student may be able to borrow up to $4,000 more in Direct Unsubsidized Loans if he or she is a freshman or sophomore, and up to $5,000 more if he or she is a junior or senior.
Your dependent student should immediately contact the school’s financial aid office to explain the situation and ask for a higher limit on his or her Direct Unsubsidized Loan.
10. Can you defer payments?
Parent PLUS borrowers have to start making payments once the loan is fully disbursed. Your assigned loan servicer will contact you when your first payment is due. But, you have the option to defer your payments under these conditions:
- while your dependent student is enrolled at least half-time; and
- for an additional 6 months after your dependent student graduates, leaves school, or drops below half-time enrollment.
You can submit your request for deferment as part of your application process, or by contacting your assigned loan servicer.
Remember, though, that interest will accrue during your deferment period. If you can afford it, you should make the interest payment at least, so you lower your overall loan amount.
11. What are your repayment options?
Parent PLUS borrowers have several repayment options.
Here are the standard repayment options:
- Standard Repayment Plan: This plan saves you the most money because it allows you to pay off your loan most quickly — within 10 years. This will be your default option if you don’t choose a repayment plan.
- Graduated Repayment Plan: With this plan, you will start with low monthly payments that will increase every two years. You pay off your loan within 10 years.
- Extended Fixed Repayment Plan: If you need to lower their monthly payments, this plan gives you the option to extend your payment period up to 25 years. You will have a fixed monthly payment. To qualify, your outstanding loan amounts must be more than $30,000.
- Extended Graduated Repayment Plan: This plan also gives you the option to extend your payment period up to 25 years, but your lower monthly payments increase over time. To qualify, your outstanding loan amounts must be more than $30,000.
Additionally, if you consolidate or combine your Parent PLUS loans into a single Direct Consolidation Loan, you may choose a payment plan based on a percentage of your discretionary income. Under the Income-Contingent Repayment Plan (ICR), your monthly payments will be the lower of 20% of your discretionary income or the amount you would pay under a fixed repayment plan over 12 years. If you haven’t paid back your loan in full after 25 years, the outstanding balance will be forgiven, but you may have to pay taxes on the amount forgiven.
12. What if you’re having trouble paying back your loans?
Get in touch with your loan servicer right away if you’re struggling to make your monthly payments. You don’t want a situation where your loan becomes delinquent or in default, because it will affect your credit score.
An account is “delinquent” the day after a first missed payment, and is deemed “in default” when it is 270 days delinquent. So, if you miss one or two payments, your loan is delinquent. But if you miss several payments, your loan will be at risk of default.
If you have money for your monthly payments but you forget, simply change to an automatic debit method to ensure timely payments.
If you can’t afford your monthly payments, however, you need to check into lowering your monthly payments. Here are a few options:
- If you have multiple Parent PLUS loans, you can apply to consolidate some or all of the loans into a single loan through StudentLoans.gov. Once you consolidate, you can access the ICR plan (described above).
- Another option is to refinance your loans through private lenders. Refinancing, like consolidation, allows you to roll multiple loans into one loan. Your interest rate is typically determined by your credit score. The caveat: You would lose access to the ICR plan that may qualify you for loan forgiveness after 25 years of payments.
If you’re in a situation where you need to postpone your monthly payments temporarily, you have two options: deferment or forbearance. Both programs, however, could have a major impact on the amount you have to pay back.
13. Are there other student loan options for parents?
Some banks offer private student loans to parents. Like Parent PLUS loans, you will be required to go through a credit check. Unlike Parent PLUS loans, however, your interest rate will vary based on your creditworthiness. You also have the option, generally, for a fixed or variable rate.
So, if you have a great credit history and you can get interest rates lower than the current Parent PLUS rate, you should look into private student loans for parents. You can start with these banks — Citizens One, College Ave, Sallie Mae and Wells Fargo — to get an idea of what some better known lenders offer.
Note, though, that there are some disadvantages when compared with federal student loans. It is crucial that you learn all about private student loans for parents before you tap this source, and don’t borrow more than what you need.
The bottom line
Try to borrow as little as possible. Your dependent student should take advantage of scholarships and grants first, and max out on Subsidized Loans (the federal government pays the interest under certain conditions and interest rate is lower than for Parent PLUS loans) and Unsubsidized Loans (the interest rate is the same as for Subsidized Loans). Once you’ve taken out Parent PLUS loans, though, act responsibly and make sure that you (and your dependent student) do not run afoul of the terms of the loans.
Susan Chu is a writer and editor who likes to write about trends in higher education.