What Is A Parent PLUS Loan?
Interested in a Parent PLUS Loan for an undergraduate student?
Here is what you need to know to be “in the know”:
Who Can Borrow. Parent PLUS Loans are available only to the parents (including step-parents as long as they are married to the student’s parent) of dependent undergraduate students. This includes both biological and adoptive parents). Unless they have legally adopted the student, other relatives such as grandparents, aunts and uncles (or legal guardians or foster parents) are not eligible.
The borrower must be a U.S. citizens or nationals, permanent residents or eligible non-citizens. Both the parents and the students must not be in default on a federal student loan, the student must be enrolled in school at least half time, and male students must have registered with the Selective Service.
No Financial Need Requirement. Parent PLUS Loans are given independent of financial need so income or assets do not impact eligibility.
Credit Overview. While eligibility is not dependent upon a borrower’s credit scores or debt-to-income ratio, a borrower must not have an adverse credit history such as current delinquencies, debt in collections, or a default or bankruptcy or foreclosure in the last five years.
Interest Rates and Fees
Interest Rates. The interest rates on Parent PLUS Loans are fixed student loan interest rates. For the 2016-2016 academic year, the student loan interest rate for the Parent PLUS Loan is 6.31%. The interest rate resets each July 1 and is equal to 4.6% plus the 10-Year Treasury Rate. There is an interest rate cap of 10.5%. Interest begins to accrue beginning on the loan disbursement date.
Fees. The current fee is 4.272%. This is double the origination fee on an MBA Loan, for example, at some private student loan companies. The origination or loan fee is a percentage of the loan amount and is proportionately deducted from each loan disbursement.
Interest Deduction. A borrower can deduct up to $2,500 per year in interest paid on a Parent PLUS Loan.
A Parent PLUS Loan has an annual limit equal to the cost of attendance less any other student loan aid received by the student. Typically, the cost of attendance includes tuition, fees, room and board, books, supplies, transportation and equipment. The Parent PLUS Loan is sent directly to the school.
The standard loan repayment term is 10 years. Repayment commences 60 days after the loan is disbursed. However, borrowers can opt to defer payments while the student (or even the parent borrower) is enrolled at least half-time in school and a for period of six months after graduation. Even with deferment, student loan interest accrues during this period.
Loan Repayment Plans
As an alternative to the standard loan repayment term, eligible loan repayment plans include: extended repayment and graduated repayment. Parent PLUS Loans are eligible for Public Service Loan Forgiveness.
A Parent PLUS Loan cannot be consolidated with the student’s federal student loans since the borrowers are different. However, a parent borrower could consolidate a Parent PLUS Loan with the parent’s own student loans since the borrower is the same.
A Parent PLUS Loan can be discharged if either the parent or student dies or if the borrower becomes permanently disabled.