What are parent student loans and how do they work?
If your child is about to start college and you don’t want to see them saddled with student debt for years, you may want to take out a loan to help them.
If you have a child who is about to enter college in the fall and you want to help them out financially so they don’t have be burdened by student debt for most of their adult life, you may want to take out a loan for them.
Student loans are not the only way to finance a college education; there are also parent student loans available to those who are willing and able to help their children. Federal parent loans are known as Parent PLUS loans, which are designed to help parents or legal guardians of dependent undergraduate students pay for their child’s education.
They can apply for these loans which are specifically intended to cover any remaining costs that aren’t covered by other financial aid options, such as grants, scholarships, and the student’s own loans.
Here’s how Parent PLUS loans work.
Eligibility
To be eligible for a Parent PLUS loan, the parent or legal guardian must be creditworthy. According to the Department of Education, this means that they need to pass a credit check to demonstrate their ability to repay the loan. If the parent has a negative credit history, they might be required to provide an endorser (similar to a co-signer) who has good credit.
Loan amount
Parents can borrow up to the total cost of attendance for their child’s education, minus any other financial aid received. The cost of attendance includes tuition, fees, room and board, books, and other education-related expenses.
Interest rate and fees
Parent PLUS loans have a fixed interest rate set by the federal government for each academic year. Interest begins accruing as soon as the loan is disbursed. In addition to interest, there is a loan origination fee, which is deducted from the loan amount before it is disbursed to the school.
Repayment
Repayment for Parent PLUS loans usually begins within 60 days of the loan’s full disbursement for each academic year. However, parents have the option to request a deferment while the student is enrolled at least half-time and for an additional six months after the student graduates or drops below half-time enrollment.
Parent PLUS loans are not eligible for income-driven repayment plans but can be consolidated into a Direct Consolidation Loan, which would make them eligible for an Income-Contingent Repayment (ICR) plan.
Loan forgiveness
Parent PLUS loans are not eligible for most federal student loan forgiveness programs. However, if the student for whom the parent borrowed the loan qualifies for loan forgiveness through programs like Public Service Loan Forgiveness, and the parent is the borrower of the loan, the loan may be eligible for forgiveness under certain conditions.
Impact on credit
Parent PLUS loans are the responsibility of the parent borrower, not the student. Failure to make payments can have a negative impact on the parent’s credit history.
Parent PLUS loans are different from student loans taken out by the student themselves, since these are in their name and thus they would be responsible for repayment after they graduate.
Private parent student loans
Parents who have good credit and who are eligible to acquire great interest rates may also consider applying for a private parent loan. It would be wise to compare the loan terms and rates you would be able to get from Parent PLUS loans as opposed to those offered by private lenders, before deciding which financing plan to sign up for.