Parent PLUS Loan

Parent PLUS loans allow parents to borrow up to the full cost of attendance minus other aid received. Unlike other federal student loans, there's no borrowing limit beyond school costs—making them both flexible and potentially dangerous.

Key Features:

Who Can Borrow:

• Parents of dependent undergraduate students
• Must not have adverse credit history (less strict than private loans)
• Student must be enrolled at least half-time
• Must be a U.S. citizen or eligible non-citizen

Loan Limits:

• Up to the full cost of attendance minus other financial aid
• No aggregate limit (can borrow for multiple children, multiple years)

Example:

• College costs: $50,000/year
• Other aid (grants, scholarships): $15,000
• Maximum Parent PLUS: $35,000/year

Interest Rates (2024-25):

• Fixed rate: 9.08% (set annually each July 1)
• Rate applies for life of loan (doesn't change after disbursement)
• Much higher than undergraduate Direct Loans (5.50%)

Fees:

• Origination fee: 4.228% (deducted from loan proceeds)
• On $20,000 loan: $20,000 - $846 fee = $19,154 received

Repayment:

Standard Terms:

• Repayment starts 60 days after full disbursement
• 10-year standard repayment
• No grace period (unlike student loans)

Deferment Options:

• Can defer while student is in school at least half-time
• Interest still accrues during deferment
• Can extend repayment up to 30 years (income-contingent repayment)

Parent PLUS Loan Costs Example: Scenario: Borrow $100,000 total over 4 years at 9.08%

• Loan disbursed: $100,000
• Origination fees: $4,228
• Net received: $95,772
• Monthly payment (10-year): $1,266/month
• Total repaid: $151,920
• Total interest: $51,920

For perspective: That's more interest than many people's original student loan balances.

Parent PLUS vs Private Parent Loans:

Advantages of Parent PLUS: ✅ Easier approval than private loans ✅ Fixed interest rate (won't increase) ✅ Can defer while student in school ✅ Income-contingent repayment option ✅ Federal loan protections (forbearance, deferment)

Disadvantages: ❌ Very high interest rate (9.08%) ❌ Large origination fee (4.228%) ❌ No forgiveness programs for parents ❌ Can't transfer to student later ❌ No cosigner release option ❌ Can offset parent's tax refund/Social Security if default

Alternatives to Parent PLUS Loans:

1. Home Equity Loan/HELOC

• Often 6-8% vs 9.08%
• Tax-deductible if used for education
• Risk: Home is collateral

2. Private Parent Loans

• Better rates if excellent credit (4-7%)
• No origination fee
• Less repayment flexibility

3. Student Borrows Private Loans

• Student's credit (with parent as cosigner)
• Often better rates than Parent PLUS
• Can release cosigner after 24 months of on-time payments
• Keeps debt in student's name

4. Ask Student to Borrow More

• Student can borrow additional $4,000-$5,000/year in unsubsidized Direct Loans (5.50% vs 9.08%)
• Lower rate and better terms than Parent PLUS

5. Consider Less Expensive School

• Community college for 2 years, transfer
• In-state public vs out-of-state/private
• Schools with better merit aid

When Parent PLUS Makes Sense:

• You have poor credit (can't get private loan)
• Need flexible repayment options
• Borrowing small amounts ($5,000-$10,000 total)
• No home equity to tap
• Short time until retirement (income-contingent repayment useful)

When to Avoid Parent PLUS:

• You're close to retirement (debt follows you)
• You have good credit (get private loan instead)
• Total borrowing exceeds $30,000 (crippling payments)
• It would delay your retirement
• Student could attend cheaper school

The Harsh Reality: Parent PLUS loans are often predatory by design. The 9.08% rate + 4.228% fee means you're paying ~14% in first year—approaching credit card territory.

Better Strategy: Before taking Parent PLUS loans, have an honest conversation:

1. Can student attend less expensive school?
2. Can student work part-time to reduce borrowing?
3. Is this degree worth the debt? ($100k+ for undergrad is usually not)
4. Will this debt delay your retirement?

Parent PLUS Loan Forgiveness: ❌ NOT eligible for Public Service Loan Forgiveness (PSLF) ❌ NOT eligible for income-driven forgiveness (for parents)

Loophole (complicated): Parents can consolidate Parent PLUS into Direct Consolidation Loan, then use Income-Contingent Repayment. After 25 years, remaining balance forgiven (but taxed as income). This is rarely worth it due to massive interest accrual.

The Bottom Line: Parent PLUS loans should be a last resort. At 9.08% + fees, you're paying nearly double what your child pays on their federal loans (5.50%). Exhaust all other options first.