How Do Parent Student Loans Work?

Quick Answer

Parent student loans allow parents to help pay for a child's college education. They typically require immediate repayment and other terms can vary depending on the lender.

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Parent student loans allow parents to help their children pay for a college education. There are two types of parent loans to choose from―federal parent PLUS loans and private parent loans—and terms can vary greatly between them.

Parent loans can also differ greatly from student loans available to students and possibly cost more. Here's what to know before you borrow.

What Is a Parent PLUS Loan?

Parent PLUS loans are student loans offered by the U.S. Department of Education. These loans come with standardized interest rates and fees for all who qualify and allow the parent to borrow up to the child's total cost of attendance, which is determined by the school.

How to Qualify for a Parent PLUS Loan

To get approved for a parent PLUS loan, you'll need to meet three major criteria:

  • Be the biological or adoptive parent of the student: In particular, they must be an undergraduate student who is attending an eligible school on at least a half-time basis. Grandparents and legal guardians are ineligible, even if they're primarily responsible for the student's care, but stepparents can qualify in certain circumstances.
  • Not have an adverse credit history: You'll undergo a credit check when you apply, which is not required for most types of federal student loans. However, the Department of Education is only looking for specific negative information, such as bankruptcy, defaults, repossession and foreclosure.
  • Meet the general federal financial aid requirements: Your child must complete the Free Application for Federal Student Aid (FAFSA) and meet basic eligibility criteria.

How Do Parent PLUS Loans Work?

After your child has submitted the FAFSA, you'll apply for a parent PLUS loan using a separate application process.

If approved, the Department of Education will disburse the loan proceeds directly to your child's school to cover tuition, fees, room and board and other costs. If there are remaining funds, the school will disburse them to your child to use for other eligible expenses.

Before you apply, though, it's important to understand how parent PLUS loans differ from federal loans available to undergraduate students. Here's a quick summary for the 2022-23 school year:

Features Parent PLUS Loans Undergraduate Direct Loans
Interest rate 7.54% 4.99%
Loan fee 4.228% 1.057%
Maximum loan amount Total cost of attendance Up to $12,500 per year and $57,500 overall, based on year in school and dependency status
In-school deferment Upon request Automatic
Access to subsidized loans No Yes
Eligibility for income-driven repayment One plan (requires consolidation) Up to four plans
Eligibility for student loan forgiveness Public Service Loan Forgiveness (PSLF) (requires consolidation) PSLF and teacher loan forgiveness

How Parent PLUS Loan Repayment Works

The default for parent PLUS loans is immediate repayment. Once the loans are disbursed to the school, your loan servicer will contact you about beginning your monthly payments.

However, you may request deferment while your child is in school. If you qualify, you won't need to start making monthly payments until six months after your child graduates, leaves school or falls below half-time enrollment.

If you're struggling to keep up with your monthly payments, you may be eligible for the following relief options:

  • Income-contingent repayment (ICR) plan: The ICR plan can reduce your monthly payments to the lesser of 20% of your discretionary income (which is 100% of the poverty guideline for your state of residence and household size) or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income. Remember, you'll need to consolidate your loans to be eligible for this plan.
  • Deferment or forbearance: Depending on your situation, you may be eligible for deferment or forbearance on your monthly payments. Options will vary based on your circumstances.
  • Other repayment plans: You can opt for a graduated repayment plan, which starts with lower payments that increase over time, or an extended repayment plan, which can go as long as 25 years.

Parent PLUS Loan vs. Private Student Loans

Parents can also obtain financing from private lenders to help their child pay for college. However, there are some key differences between federal and private parent loans:

  • Eligibility requirements: While both require a credit check, private lenders have more stringent creditworthiness requirements and may deny you if your credit score or income is too low.
  • Interest rates: While parent PLUS loans only come with fixed interest rates, private lenders may offer both fixed and variable rates. Additionally, private lenders offer a range of interest rates, which are dependent on your creditworthiness. Depending on your situation, you may get a lower or higher rate than what the Department of Education offers.
  • Fees: Parent PLUS loans come with a relatively high upfront fee, while private lenders typically don't charge one.
  • Repayment: Both federal and private parent loans require immediate repayment, but while parent PLUS loans can be deferred if you request it, that's not the case with private loans.
  • Relief options: You won't get access to income-driven repayment or loan forgiveness programs with private loans. Additionally, private lenders typically offer less generous deferment and forbearance options if you can't afford your payments.

If your financial situation is in excellent shape and you can get a lower interest rate with a private lender, it can make sense to go with private parent loans over parent PLUS loans. That's especially true if you don't anticipate needing access to federal relief programs.

If your financial future is in question, though, or your credit isn't good enough to qualify for a low rate on a private loan, opt for federal loans.

How Do Parent Student Loans Impact Your Credit?

Whether federal or private, parent student loans can affect your credit in various ways. When you first apply, you may undergo a hard credit check, which has a minor temporary impact on your score.

Additionally, adding a new credit account will affect your length of credit history and total amount owed. If you make on-time payments, your parent loans can help you build your credit score. But if you miss even one payment by 30 days or more, it can have a significant negative impact on your credit profile and remain on your credit reports for seven years.

Paying off the loan can positively or negatively affect your score, depending on the circumstances. Note, however, that positive payment history will remain on your credit reports for 10 years.

As a result, it's crucial that you apply for parent student loans only if you're confident that you'll be able to repay the debt.

Should You Apply for Parent Student Loans?

Before you apply for parent PLUS loans or private parent loans, consider the potential impact on your finances, particularly if you're close to retirement age.

If your child can qualify for federal undergraduate loans with lower interest rates—especially if they can get subsidized loans—it may be better for them to apply instead of you. If you still want to help, you can even agree to make the monthly payments. That way, you may be able to save money, and the loans won't impact your credit.

It's also a good idea to encourage your child to look for other ways to pay for college, including scholarships, grants and part-time work.

But if federal loans aren't an option for your child or they need more money than they can borrow, parent loans can be a good way to supplement their efforts.