Parents of dependent students1 may apply for a unsubsidized Direct PLUS Loan to help pay their child’s education expenses as long as certain eligibility requirements are met. Here, the parents are responsible for repayment on the loan, not the student.
A Parent PLUS Loan, often referred to as “financial aid for parents”, allows the parent to borrow an amount up to the total cost of child’s education – tuition, room and board, and any other eligible school expenses, minus any other aid the child is receiving in their name.
To be eligible for a Parent PLUS Loan,
- The parent borrower must be the student’s biological or adoptive parent.
- The child must be a dependent student who is enrolled at least half-time at a school that participates in the Direct Loan Program.
- The student and parent must be U.S. citizens or eligible non-citizens and
- must not be in default on any federal education loans or owe an overpayment on a federal education grant.
Most importantly, the parents must be creditworthy to qualify for a PLUS loan. The college may refuse the loan application or approve it for less than the cost of attendance.
The annual limit on a PLUS Loan is equal to the student’s cost of attendance minus any other financial aid the student receives.
For example, if the cost of attendance is $8,000 and the student receives $5,000 in other financial aid, the student’s parent can borrow as much as $3,000 through the PLUS Loan.
The interest rate is fixed at 7.9%.2 Interest is charged from the date of the first disbursement until the loan is paid in full.
The parent will also pay a fee of 4% origination fee, deducted proportionately each time a loan disbursement is made.
The repayment period for a Direct PLUS Loan begins at the time the PLUS loan is fully disbursed, and the first payment is due within 60 days after the final disbursement with the repayment term of up to 10 years.
Although PLUS loan offers an attractive low-cost option for parents to supplement their child’s financial aid packages than typical private loans, it is generally a good idea for families to exhaust Stafford loan eligibility before turning to the Parent PLUS loan since Direct Stafford loan has a lower interest rate than the PLUS loan (6.8% or less, compared with 7.9%).