June 6, 2023 by Marjorie R. Rogers, MA (English), Certified Consultant
Parent plus loan is a federal loan for parents of undergraduate students. This loan helps parents pay for educational expenses not covered by other financial aid options.
This type of loan is an excellent choice for parents who are struggling to cover the complete cost of their child’s college education. Parent plus loans offer fixed interest rates and favorable repayment terms that make paying off the debt more manageable.
Additionally, parents do not need to demonstrate any financial need to qualify for the loan. However, it is crucial to remember that parent plus loans come with fees and interest, which can significantly increase the overall loan cost. Parents must consider their long-term financial goals and budget carefully before taking out a parent plus loan.
What Is Parent Plus Loan?
Parent plus loans are a type of federal student loan accessible to parents, guardians, or stepparents of dependent students to help pay for undergraduate educational expenses. If you’re curious about what parent plus loans are, how they work, and how to apply, keep reading.
In this section, we’ll break down the essential points regarding parent plus loans in the following h3 headings (###):
Definition Of Parent Plus Loan
Parent plus loans are a specific type of federal student loan provided by the u. s. department of education. This loan is meant to support the education expenses of dependent undergraduate students. The loan can be used to cover any education-related expenses, including tuition fees, accommodation, books, and other supplies.
Parents can borrow the full expense of the student’s education via this loan.
Eligibility Requirements For Parent Plus Loan
To be eligible for parent plus loans, the applicant must fulfill the following requirements:
- They must be either the biological, adoptive parent or legal guardian of a dependent undergraduate student who is enrolled in a full-time educational program.
- The student who will receive benefits from the loan must be a dependent student with no adverse credit history and must attend at least a half-time program or equivalent.
- The applicant should not have an adverse credit history, including a current delinquency of 90 or more days or other recent negative credit history.
How To Apply For Parent Plus Loan
The application process for parent plus loans involves the following steps:
- The parent or legal guardian interested in applying for a parent plus loan must complete the application, available online, which will follow a credit check.
- The process of credit check determines the eligibility of the applicant by checking credit history.
- After a positive credit check, the applicant can submit an online promissory note in which they agree-to-pay back the borrowed loan amount.
- The loan is then disbursed directly to the student’s school.
Interest Rates And Fees For Parent Plus Loan
Parent plus loans have a fixed interest rate that is based on the current market rate. As of 2021, the interest rate is 6. 28%, which is higher than the stafford loans’ fixed interest rate offered to students. The interest rate is static throughout the loan term, not subject to market variations.
Parent plus loans also charge loan origination fees that are a percentage of the total loan amount, typically around 4. 21 %. However, the us department of education has waived off these fees until the end of september 2021.
That’s all you need to know about parent plus loans. If you’re interested in obtaining one, ensure you satisfy all eligibility requirements and prepare all documentation.
Advantages Of Parent Plus Loan
Parent plus loans are a type of federal government loan that parents can apply for to help pay for their child’s education. These loans come with several advantages, including lower interest rates, no minimum credit score or income requirements, and the ability to cover the full cost of attendance.
Let’s take a closer look at each of these advantages.
Lower Interest Rates Than Private Loans
One of the biggest advantages of parent plus loans is that they typically come with lower interest rates than private loans. The interest rate for parent plus loans is fixed at 6. 28% for the 2021-2022 school year, while private loan interest rates can vary widely depending on the lender and the borrower’s credit profile.
This means that parents can save money in interest over the life of the loan by choosing to go with a parent plus loan instead of a private loan.
No Minimum Credit Score Or Income Requirement
Another advantage of parent plus loans is that there is no minimum credit score or income requirement to apply. This can be a relief for parents who may have a less-than-perfect credit history or who don’t meet the income requirements for other types of loans.
However, it’s important to note that the department of education will still review the borrower’s credit history to determine eligibility.
Can Be Used To Cover Full Cost Of Attendance
Finally, parent plus loans can be used to cover the full cost of attendance, including tuition, room and board, and other expenses such as books and supplies. This can be especially helpful for parents who may not have the cash on hand to cover these costs out of pocket.
However, it’s important to remember that borrowing the full cost of attendance can lead to larger debts down the line, so it’s always wise to borrow only what is necessary.
Parent plus loans offer several advantages, including lower interest rates, no minimum credit score or income requirement, and the ability to cover the full cost of attendance. Parents should carefully consider all their loan options and borrow only what they need to make the most of these benefits.
Pros Of Parent Plus Loan
Parent plus loan is an option for parents to finance their child’s education without needing a co-signer. It offers flexible repayment options and eligibility is not based on financial need. Additionally, it offers loan forgiveness eligibility. Here are the three pros of a parent plus loan explained in detail:
No Co-Signer Required
Parent plus loans do not require a co-signer, which means that parents can pay for their child’s education without the need for additional support. This can be beneficial for those who do not have a co-signer or do not want to burden someone else with the responsibility of co-signing.
- No need for a co-signer
- Offers financial independence to parents
- Parents can take full responsibility for their child’s education, without relying on others for assistance
Flexible Repayment Options
Parent plus loans have flexible repayment options, which can make it easier for parents to pay back the loan. These repayment options allow parents to make payments that suit their financial situation, without being too burdensome.
- Offers flexible repayment plans
- Parents can choose a repayment option that suits their budget
- Helps parents to avoid defaulting on the loan
Eligibility Not Based On Financial Need
Parent plus loans do not have any financial restrictions. The loan is available to all parents regardless of their financial need. This means that all parents are eligible to apply for the loan, regardless of their income level.
- Eligibility is not based on financial need
- Parents can apply for this loan, regardless of their financial status
- Parents with a good credit history can easily get approved
Loan Forgiveness Eligibility
Parent plus loan offers loan forgiveness eligibility, which can be extremely beneficial for parents. Though there are certain requirements to be met before being eligible for loan forgiveness, it can still provide a much-needed relief to parents who struggle to repay the loan.
- Loan forgiveness eligibility is available
- Parents can take advantage of loan forgiveness programs
- Eligibility requires meeting certain requirements, but still offers relief to those struggling to repay the loan
Parent plus loan can be an excellent option for parents who want to finance their child’s education without the need for a co-signer. Flexible repayment plans, no financial restrictions, and loan forgiveness eligibility make it a desirable option for many.
Disadvantages Of Parent Plus Loan
Parent plus loan is an attractive option for many families to finance their kid’s college education. However, it comes with its set of drawbacks, too. We’ll explore the disadvantages of parent plus loan with markdown format headings.
Higher Interest Rates Than Federal Direct Loans
Parent plus loan interest rates are higher than federal direct loans. For instance, the current interest rate for parent plus loan is 6. 28%, while for federal direct unsubsidized loans, it is currently 4. 30%. This means that over time, the parent plus loan’s interest rates can add up considerably, making it harder for parents to repay the loan.
To put it in perspective, let us take an example. Suppose a parent borrows $40,000 in parent plus loans at a 6. 28% interest rate with a repayment term of ten years. In that case, they’ll pay $14,262 in interest alone, making the total repayment amount $54,262.
The parent plus loan also comes with an origination fee. In simpler terms, an origination fee is a charge a borrower pays to initiate a loan. The origination fee for parent plus loan is 4. 228% of the total amount borrowed, which is quite high when compared to other loans.
Let’s take the same example of a $40,000 loan mentioned earlier with a 4. 228% origination fee. That means that the parent will end up with $38,291 for their child’s education while the rest of the amount goes towards the origination fee.
Responsibility For Repayment Rests Solely On Parent
Another disadvantage of parent plus loan is that the responsibility for repayment solely rests on the parent. Although the student benefits from the loan, they are not responsible for paying it back. This means that if the parent goes into default, it can badly affect their credit score.
Additionally, if the parent passes away or becomes unable to repay the loan due to unfortunate circumstances, the burden falls on the parent’s estate. It can create a significant financial burden for family members left behind.
Limited Options For Financial Hardship
Lastly, the parent plus loan comes with limited options for financial hardship. If the parent starts to face financial challenges and cannot pay back the loan, they have limited options as compared to other loans.
For instance, they cannot avail of an income-driven repayment plan like federal direct loans. This means that the parent may have to look for alternative options to pay back the debt or risk defaulting on the loan.
While parent plus loan is an attractive option to finance your child’s college education, it also comes with its set of downsides. Before opting for parent plus loan, parents should consider all the drawbacks mentioned and make an informed decision.
Cons Of Parent Plus Loan
Parent plus loan is a type of federal direct loan designed to help parents pay for their child’s undergraduate education. While this loan can provide a source of funding for parents who would like to support their child’s education, it also comes with some drawbacks.
In this section, we will discuss some of the cons of parent plus loan in detail.
Limited Deferment And Forbearance Options
One of the significant disadvantages of parent plus loan is limited deferment and forbearance options. Unlike other federal student loans, parent plus loan offers minimal options for postponing loan payments. It means that if you face any financial hardships, you may not have the option to postpone loan payments temporarily.
This lack of flexibility can make it challenging for borrowers to repay their loan and meet their other financial obligations simultaneously.
• only deferment options: parent plus loan offers limited options for loan deferment. The loan can be postponed only if the student is enrolled in school at least half-time or is facing economic hardship. Therefore, this loan may not be the best option for parents who anticipate financial challenges or interruptions in their income.
No Income-Driven Repayment Plans
Unlike other federal student loans, parent plus loan does not offer income-driven repayment plans. Income-driven repayment plans allow borrowers to pay a percentage of their income towards their loan payment. The lack of this option can make repayment more challenging for borrowers who face financial difficulties or unexpected changes in their income.
• no monthly payments adjustment: parent plus loan payment does not vary according to the borrower’s income or employment. Therefore, if you’re experiencing a decrease in income or increase in expenses, it may become challenging to make your loan payments on time.
Possibility Of Unaffordable Monthly Payments
Another disadvantage of parent plus loan is that it can lead to unaffordable monthly payments. This loan has no maximum limit, so parents can borrow up to the cost of attendance minus any other financial aid. Still, it is essential to assess your ability to repay the loan before borrowing.
• high-interest rates: parent plus loan has a higher interest rate than other federal student loans. It means that you may end up paying more over the loan’s life than you would have with another loan.
• repayment term: parent plus loan has a maximum repayment term of ten years, which can result in high monthly payments. It can become challenging to manage these payments if they are an unaffordable amount of your income.
Default Has Serious Consequences
Finally, defaulting on parent plus loan can have serious consequences. Defaulting on these loans can affect the borrower’s credit score, and the government can garnish the borrower’s wages or seize their tax refunds.
• credit consequences: defaulting on parent plus loan can damage your credit history, making it challenging to qualify for other loans or credit cards.
• legal actions: the government can take legal actions against borrowers who default on their loans. These actions can include wage garnishment, liens on the property, or taking legal action through the court.
Parent plus loan can be an excellent source of funding for parents who want to support their child’s undergraduate education. Still, borrowers need to weigh the disadvantages of this loan carefully. Limited deferment and forbearance options, no income-driven repayment plans, the possibility of unaffordable monthly payments, and the serious consequences of default should all be factored into your decision-making process when deciding whether or not to opt for parent plus loan.
Alternatives To Parent Plus Loan
What Is Parent Plus Loan?
Parent plus loan is a financial aid program in the united states that helps parents or legal guardians to pay for their child’s undergraduate education expenses like tuition, room, and board. Parent plus loans come with higher interest rates and fees than other federal student loan programs, and not all parents can qualify for them.
If you’re a parent who’s exploring alternative ways to finance your child’s higher education, here are some options to consider:
Federal Direct Loans For Students
Federal direct loans are the most common form of student loans in the us, offered by the federal government to eligible undergraduate and graduate students. Unlike parent plus loans, which require parents to apply and undergo a credit check, students can apply for federal direct loans independently.
Here are some key points to consider:
- Federal direct loans usually have lower interest rates than parent plus loans.
- Eligibility for federal direct loans is based on financial need and other factors, rather than creditworthiness.
- Students can choose between subsidized and unsubsidized federal direct loans, depending on their financial situation.
- The maximum amount of federal direct loans that a student can borrow each year is determined by their grade level and other factors.
Private Student Loans
Private student loans are issued by private lenders, such as banks or credit unions, to help students pay for their education expenses. Private student loans typically have higher interest rates than federal student loans, but they may offer more flexible repayment options.
Here are some key points to consider:
- Private student loans require a credit check, and most lenders will only approve borrowers with a good credit score or a cosigner.
- Interest rates and fees for private student loans can vary widely, so it’s important to shop around for the best offer.
- Private student loans usually don’t have the same borrower protections as federal student loans, such as income-driven repayment plans or loan forgiveness programs.
Home Equity Loans
Home equity loans allow homeowners to borrow money using their home’s equity as collateral. Home equity loans usually have lower interest rates than parent plus loans or private student loans, but they carry the risk of foreclosure if the borrower can’t make the payments.
Here are some key points to consider:
- Home equity loans require a good credit score and a steady source of income to qualify.
- Borrowers can typically borrow up to 85% of their home’s equity, minus any outstanding mortgage debt.
- Home equity loans usually have fixed interest rates and predictable monthly payments.
Retirement savings, such as a 401(k) or ira account, can be used to pay for qualified higher education expenses without penalties or taxes. However, this option should only be considered as a last resort, since it can significantly impact your future retirement savings.
Here are some key points to consider:
- Using retirement savings for education expenses can reduce your retirement income and jeopardize your financial stability in the future.
- If you must use retirement savings, consider taking out a loan against your 401(k) or ira instead of making a withdrawal.
- Make sure to consult a financial advisor before dipping into your retirement savings.
More Affordable Options Than Parent Plus Loan
What is parent plus loan: more affordable options than parent plus loan
Financial funding for higher education can be challenging for many families. You might be thinking about borrowing money through parent plus loans as they offer a reliable source of financial aid for families. However, before you settle down with parent plus loans, there are more affordable options you can consider.
Federal Direct Loans For Students
Federal direct loans for students are loans offered through the u. s. department of education to help students find financial aid options for higher education. They benefit students with low-interest rates and flexible repayment plans. Some of the key points are:
- The subsidized and unsubsidized loan interest rate is 2.75% for undergraduate students for the 2021-22 academic year.
- Subsidized loans are based on financial need, and the government covers the interest while the student is in school.
- Unsubsidized loans are not based on financial need, and the student is responsible for the interest payment.
- Students are not required to start paying their loans until six months after graduation or leaving college.
Scholarships And Grants
Scholarships and grants are resources that students can rely on as they don’t require repayment. They are offered based on factors such as academic merit, community service, athletic skills, and hardships. Here are some key points about scholarships and grants:
- Scholarships and grants can be offered on a state or federal level and individual colleges and universities.
- Scholarships and grants can pay for a part of, or the complete cost of tuition, books, and housing, and other educational expenses.
- Students can apply for scholarships and grants through free application for federal student aid and collegeboard scholarship search.
College work-study program is a financial assistance program that provides part-time employment to students while they pursue their education. They offer both on-campus and off-campus employment options. Here are some key points about work-study program:
- It is offered by colleges and universities if students are eligible based on financial need.
- Students earn at least the current federal minimum wage per hour but can earn more, depending on the job.
- The number of hours worked depends on the student’s schedule and academic progress.
- Work-study program provides students with valuable work experience and an opportunity to develop new skills.
Personal savings is another option that you can consider as a means of paying for higher education. It may sound like a challenging task, but with proper planning and budgeting, it is achievable. Here are some key points about personal savings:
- Putting some money aside into a savings account on a regular basis can help families to pay for education expenses.
- Several banks offer high-yielding savings accounts, which can be an excellent option for saving significant savings over time.
- Families can also think of minimizing expenses such as dining out, entertainment, and vacations to save up for their child’s education.
Borrowing a parent plus loan can be helpful, but it may not be the most cost-effective option. These four alternatives can help students and their families find a more affordable way to finance higher education.
Frequently Asked Questions For What Is Parent Plus Loan?
What Is A Parent Plus Loan?
A parent plus loan is a federal loan that enables parents to borrow funds to pay for their children’s education.
How Do I Apply For A Parent Plus Loan?
To apply for a parent plus loan, you must complete the fafsa, pass a credit check, and sign a parent plus master promissory note.
How Much Can I Borrow With A Parent Plus Loan?
Parents can borrow up to the cost of attendance of their child’s school minus any financial aid received.
What Are The Interest Rates For Parent Plus Loans?
The interest rate for parent plus loans is fixed at 7. 08% for loans disbursed between july 1, 2019, and june 30, 2020.
When Do I Start Repaying A Parent Plus Loan?
Repayment of a parent plus loan begins within 60 days after the full disbursement of the loan, unless granted a deferment or forbearance.
As a conclusion, parent plus loans are a significant financial tool for parents looking to help their children finance education. The loan program allows parents to borrow an amount equal to their child’s total tuition expenses, minus any financial aid received, with a fixed interest rate.
Parent plus loans come with various benefits, such as deferment options and the ability to choose a repayment plan that suits the borrower’s financial situation. However, it is vital to consider the loan’s cost, as borrowing a significant amount could be a financial burden.
Before applying for a parent plus loan, parents should carefully review their finances, consider other options, and ensure that they understand the loan’s terms and conditions. By doing so, they can make an informed decision about whether this type of loan is the right choice for their family.
About Author (Marjorie R. Rogers)
The inspiring mum of 6 who dedicates her time to supporting others. While battling with her own demons she continues to be the voice for others unable to speak out. Mental illness almost destroyed her, yet here she is fighting back and teaching you all the things she has learned along the way. Get Started To Read …