What are Parent PLUS Loans?

If you’re a parent of a dependent undergraduate student and want to help pay for their college education, you have options — including a Parent PLUS Loan from the U.S. Department of Education.

These loans offer more flexible payment plans than many private student loan options, but also have some key drawbacks. For example, they can be more expensive over time. And you — not your child — will be responsible for repaying your Parent PLUS Loan.

• What is a federal Parent PLUS Loan?
• Parent PLUS Loans vs. private parent loans
• Should a parent or student take out a private student loan?
• How to apply for a Parent PLUS Loan
• How to apply for a private student loan

What is a federal Parent PLUS Loan?

The federal government limits how much students can borrow in government loans. So, parents may take out a federal Parent PLUS Loan to help pay for their child’s education costs.

Parent PLUS Loans are a type of Direct PLUS loan made to the parent of a dependent undergraduate student. They’re not available to students and can’t be transferred.

Parent PLUS Loans have fixed interest rates, but they typically come with an origination fee.

The maximum Parent PLUS Loan amount you can borrow is the school’s cost of attendance minus any other financial aid your child receives.

Because these loans aren’t subsidized, interest begins to accrue as soon as the funds are disbursed, and the borrower is responsible for paying all the interest. If you defer the loan, you don’t have to make payments while your child is in school at least half-time or for six months after your child graduates, drops below half-time enrollment, or leaves school. But interest will still accrue during the deferment period.

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Can you claim a Parent PLUS Loan on taxes?

The IRS student loan interest deduction allows you to deduct up to $2,500 each year from your taxable income as a Parent PLUS borrower. However, the actual amount you can deduct is based on the interest you paid during the previous tax year, your tax filing status, your income, and other factors.

If you have any questions about student loan tax deductions, consult a tax professional.

Parent PLUS Loans vs. private parent loans

Both Parent PLUS Loans and private parent loans can help you pay for your dependent student’s college education. The federal government makes Parent PLUS Loans, while banks, credit unions, and other financial organizations offer private parent loans either online or in-person.

Parent PLUS Loans

To receive a Parent PLUS Loan, you must be the parent (in some cases, you can be the step-parent) of a dependent undergrad who is enrolled in college at least half-time. You must have a good credit history and meet other general eligibility requirements. You can apply on the Federal Student Aid website, and you’ll undergo a credit check.

HOW MUCH CAN YOU BORROW IN STUDENT LOANS?

Private parent loans

Private parent loans are private student loans that you can take out to fund your child’s education. You typically need good to excellent credit to qualify for the lowest interest rates.

If your credit is poor, you may elect to use a cosigner. Many federal loan programs do not require a credit check or cosigner. But they do conduct a credit check on all Direct PLUS Loan applicants. To receive a Parent PLUS Loan with poor credit, you may choose to obtain an endorser with good credit or provide documents describing the extenuating circumstances relating to your adverse credit history.

Most private lenders also conduct a credit check, so applying with a cosigner may help you obtain a loan with better rates than if you tried to apply on your own. Just remember, if you are unable or unwilling to make your loan payments, your cosigner will be responsible for all missed payments or even the total balance on the loan.

Should a parent or student take out a private student loan?

To get the best rates and terms on a private student loan, you’ll need good to excellent credit. If you’re a student without a credit history or your credit is shaky, you may want to consider adding a parent as a cosigner.

How to apply for a Parent PLUS Loan

If you decide a Parent PLUS Loan is right for your family, you can apply online at StudentAid.gov. Here are the basic steps:

• If you have a security freeze on your credit file, contact the credit bureaus to have it removed so the government can process your loan application.
• Go to the application page on StudentAid.gov.
• Log in with your FSA ID (if you don’t have an account, you’ll need to create one).
• Follow the on-screen steps to submit your application.

Keep in mind, PLUS loans require a credit check. If you have adverse credit history, you may still be able to get a Parent PLUS Loan, but there will be extra steps involved.

WHAT IS FAFSA?

How to apply for a private student loan

It’s always a good idea to shop around for the best private student loan lenders to find one that offers the best rates and terms for you. When you’ve narrowed your search, follow these steps to apply for private loans:

• Fill out the FAFSA. If you want to apply for a private student loan, the first step should be filling out the FAFSA. That’s because it’s best to max out scholarship and grant options, as well as all federal school loan options, first. Federal loans are more flexible and offer deferment for up to three years if you can’t make your payments (interest is also paused during this time). They also have fixed interest rates, so your monthly payment won’t change. Many private student loans have variable rates that can change.
• Gather personal information. The lender will likely ask for some general information, such as your Social Security number, address, school information, income and employment information, monthly debt, and the amount you’re requesting.
• Complete your application. You may be able to complete your application online or in-person at your bank or credit union.
• Accept the funds. If you agree with the terms of the loan, you can sign your loan agreement and accept the funds. If the financial institution requires confirmation of funds from the school, it may take longer to see the funds deposited into your account.

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