6 Federal Parent PLUS Loan Basics You Need to Know
The federal government has an amazing loan program for parents who want to borrow to help pay for their undergraduate kid’s college costs called the Parent Loan for Undergraduate Students (PLUS). Parents of dependent undergraduates can borrow up to the cost of attendance minus all other forms of financial aid. If you are considering this college financing option, understanding a few basic facts is essential to be an informed borrower.
1. A Light Credit Check is Required
Unlike other financing options, Federal Parent PLUS Loans don’t consider your credit score or your Debt-to-income (DTI) ratio. Instead Federal Parent PLUS Loan eligibility does a light credit check to ensure the borrower does not have an
adverse credit history. The US Department of Education is wanting to ensure that borrowers have demonstrated minimum good financial habits in order to borrow a Federal Parent PLUS Loan.
2. A Dependable Fixed Rate
Federal Parent PLUS Loans have a
fixed interest rate set annually based on
10-year Treasury plus 4.6% which is capped at 10.5%. The current PLUS loan rate is 7.54%. Parents may elect to make no payment while their kid is enrolled at least half-time or in their six-month
grace period. If a parent opts to defer repayment during the in-school period, unpaid interest is
capitalized once prior to entering repayment.
3. Loan Fees Deducted from Disbursements
The federal government charges a loan fee (sometimes known as an origination fee) for all Federal Direct Loans, including the Federal Parent PLUS Loan. The amended Higher Education Act of 1965 set a loan fee of 4 percent for all Federal Parent PLUS Loans. In addition, based on the Budget Control Act of 2011, the Office of Management and Budget (OMB) adds an additional amount to the fee annually as of October 1st as an automatic deficit reduction cutting mechanism. Currently, the loan fee is 4.228%. This loan fee is deducted from each disbursement. This means that if borrowing $10,000 to pay a tuition bill, the college will only be disbursed $9,577.
4. A Few Repayment Plans
The standard loan repayment for a Federal Parent PLUS Loan is set as a 10-year repayment. However, parent borrowers can elect to change to one of the following repayment plan options:
Some parent borrowers who want a repayment linked to their income consider consolidating all of their Federal Parent PLUS Loan debt into a Federal Direct Consolidation Loan.
5. Repayment Protections
Federal Parent PLUS Loan offers some
deferment and forbearance options. The most common used is a deferment option for making payments while your kid is enrolled at least half-time, and for an additional six months after your child graduates or drops below half-time enrollment status. Also, parents are eligible to postpone repayment if they are:
- Enrolled full-time course of study in a graduate fellowship program
- In an approved full-time rehabilitation program for individuals with disabilities
- Unemployed or meet our rules for economic hardship (limited to a maximum of three years).
- Serving on qualifying active duty in the U.S. armed forces or National Guard.
If a parent does not meet any of the aforementioned conditions, they still may receive repayment relief by asking for forbearance.
6. No Prepayment Penalties
One of the great things about Federal Direct Loans like the Federal Parent PLUS Loan is the fact that no prepayment penalties exist. This means extra payments that are made before you are required to pay will first be applied to any outstanding accrued interest and the remainder will be applied to the principal without any extra fees being charged.
Colleen Krumwiede
Co-Founder & Chief Marketing Officer
Colleen MacDonald Krumwiede is a financial aid and paying for college expert with over a decade of financial aid experience at Stanford GSB, Caltech, and Pomona College and another decade at educational finance and technology companies servicing higher education. She guides go-to-market strategy and product development at Quatromoney to transform the way families afford college.
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