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If you have a child in college, you might be considering borrowing a parent PLUS loan to help them pay for tuition. While you can borrow up to your student’s full cost of attendance, you’ll need to apply for the parent PLUS loan every year to ensure continued funding.
This is because federal financial aid, such as grants and loans, are distributed annually based on the information you provide on the Free Application for Federal Student Aid (FAFSA).
Let’s take a closer look at how parent PLUS loans work and when to apply for them. Specifically:
Why you have to apply for the parent PLUS loan every year
Just like other types of federal financial aid, you must apply for the parent PLUS loan on an annual basis, or at least every year you need the loan.
Financial aid is distributed annually for a few reasons. First, it’s based on the information you provide on the FAFSA, such as your family’s income and number of children in college. If your circumstances change, your eligibility for aid will be adjusted.
Second, the amount you can borrow is based on the school’s cost of attendance, which is also subject to change from year to year. For instance, tuition rates could increase, or your child might be eligible for more aid if they’re receiving fewer scholarship awards in later years.
And third, a parent PLUS loan involves a credit check. If you have adverse credit, you won’t get approved, unless you apply with an endorser. Federal Student Aid checks your credit each year before giving you a loan.
For these reasons, you can borrow a parent PLUS loan one year at a time, just as your child can borrow federal direct loans one year at a time. All that said, filing a renewal FAFSA for your student’s sophomore, junior or senior year is usually easy.
As long as your circumstances haven’t changed much, you can simply transfer the information you provided from the previous year into the new FAFSA, make any necessary updates and hit submit.
The FAFSA becomes available on Oct. 1 each year, and it’s a good idea to submit it as soon as you can. As for the parent PLUS loan, you can typically apply for it a few months later, in the spring or early summer.
How to apply for a parent PLUS loan
There are a few steps involved in applying for a parent PLUS loan.
- Submit the FAFSA so that the government can calculate your Estimated Family Contribution (EFC). Note that EFC will soon be renamed Student Aid Index.
- Create a StudentAid.gov account and fill out the application. It asks for your and your child’s personal information, as well as how much you want to borrow. Plus, you need to consent to a credit check. Borrowers with adverse credit may need to apply with an endorser to qualify. You can preview the parent PLUS application form here.
- Sign a Master Promissory Note. By signing this loan agreement, you agree to pay back the loan according to its terms and conditions. You usually only need to sign this the first time you borrow, as it’s good for 10 years.
- Wait for the school to receive the funds. The school will apply the parent PLUS loan funds to tuition, fees and other related charges. If you borrowed more than you need, the school will disburse the leftover funds to you. You can use these remaining funds to cover other educational costs or return them to Federal Student Aid.
- Begin repaying your loan. You can either start making payments on the loan immediately or defer repayment while your child is in school, depending on the plan you selected. Note that deferring payments means you’ll pay more in interest in the long run.
While most parents can apply for PLUS loans on the StudentAid.gov website, some schools have special processes in place. Check with your child’s college, specifically the financial aid office, about the best way for you to apply for a parent PLUS loan.
Parent PLUS loans: Rates, terms and repayment plans
The parent PLUS loan can be a useful way to cover college costs, as it comes with a reasonable interest rate and flexible repayment terms.
PLUS loans have fixed interest rates, meaning the rate at which you borrowed the loan will remain the same while you’re paying it back. As mentioned, you can also choose whether to make payments on your PLUS loan immediately or defer payments while your child is in school and for six months after they graduate or drop below half-time enrollment.
If your PLUS loan payments are burdensome, you might be able to adjust them on a graduated, extended or income-contingent repayment plan. Finally, parent PLUS loans are eligible for certain federal forgiveness programs.
All that said, PLUS loans do have a couple of downsides. For one, they come with an origination fee, which adds to your total cost of borrowing.
Second, federal loans like PLUS loans have no statute of limitations. If you default on your student loans, collectors can pursue you for repayment, and the government can garnish your wages, tax refund or even Social Security benefits.
Parent PLUS loans vs. private loans
PLUS loans aren’t your only option as a parent borrower. You can also consider private student loans from a bank, credit union or online lender.
Private student loans typically have stricter credit requirements than PLUS loans. But if you have excellent credit, it’s possible you could get an even lower rate.
Plus, some lenders, such as Citizens Bank, let you apply for multiyear approval from the beginning, so you won’t have to apply year after year.
Here are some other key differences between the federal PLUS loan and a private student loan for parents.
|Parent PLUS loans||Private loans for parents|
|Interest rate||5.3% for loans disbursed between July 1, 2020 and July 1, 2021||Varies by lender|
|Fixed or variable rate||Fixed rate||Fixed, variable or hybrid rate|
|Origination fee||4.228% for loans issued between Oct. 1, 2020, and before Oct. 1, 2021||Some lenders do not charge origination fees|
|Qualification requirements||Parents must not have adverse credit, such as from a delinquent debt, foreclosure or repossession||Private lenders consider applicants’ credit history and debt-to-income ratio|
Private student loans also have a statute of limitations in the event of default, meaning that collectors can’t pursue repayment after a certain amount of time has passed. That said, failing to pay back your private loan can still have severe consequences, as it could wreck your credit or even result in you getting sued.
When comparing PLUS loans and private student loans for parents, it’s worth thinking about these differences, especially your interest rate, repayment options and potential eligibility for forgiveness programs.
Why you should plan carefully when borrowing a parent loan
Once you’ve carefully researched loan options and learned when and how to apply for a parent PLUS loan, you can make an informed decision about how best to fund your child’s education.
Remember to consider how student loan debt will affect your future. You don’t want to jeopardize your retirement security, so find the most affordable loan you can and consider creating a plan for early repayment.
If you apply for a PLUS loan and are denied, taking these steps could help.
Christy Rakoczy and Andrew Pentis contributed to this report.
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