What is a Federal Parent PLUS Loan?
A Federal Parent PLUS Loan is a type of federal student loan designed to help parents of dependent undergraduate students pay for their education expenses. These loans are part of the William D. Ford Federal Direct Loan Program, which is administered by the U.S. Department of Education. The PLUS loan is an excellent option for parents who may not qualify for other types of financial aid or who need additional funds to cover the costs of their child’s education.
The Federal Parent PLUS Loan allows parents to borrow the full cost of their child’s education, minus any other financial aid they may receive. This includes tuition, fees, room and board, books, and other related expenses. The loan is credit-based, meaning that parents must pass a credit check to be eligible for the loan. If a parent is unable to pass the credit check, they may still be eligible for the loan if they obtain an endorser or if the loan is approved by the Department of Education based on extenuating circumstances.
Eligibility and Application Process
To be eligible for a Federal Parent PLUS Loan, the student must be enrolled at least half-time in an eligible program at an eligible school. The parent borrower must also be a U.S. citizen or eligible non-citizen, and must have a valid Social Security number. Additionally, the parent must not have an adverse credit history, which includes delinquencies, defaults, bankruptcy, or other derogatory credit information.
The application process for a Federal Parent PLUS Loan involves several steps. First, the parent must complete the Free Application for Federal Student Aid (FAFSA). Once the FAFSA is processed, the school will determine the student’s financial aid eligibility, including the amount of the PLUS loan for which the parent may be eligible. The parent will then need to complete the PLUS Loan Request Form and the Master Promissory Note (MPN) for the PLUS loan.
Interest Rates and Repayment Options
Federal Parent PLUS Loans have a fixed interest rate, which is set by the U.S. Department of Education each year. For loans disbursed on or after July 1, 2021, and before July 1, 2022, the interest rate is 5.28%. Interest begins to accrue on the day the loan is disbursed and continues to accrue until the loan is fully repaid.
Parents have several repayment options for Federal Parent PLUS Loans. They can choose from standard, extended, graduated, or income-driven repayment plans. The standard repayment plan requires borrowers to make fixed monthly payments over 10 years, while the extended repayment plan allows for longer repayment periods of up to 25 years. Graduated repayment plans involve lower monthly payments that increase gradually over time, and income-driven repayment plans base the monthly payment on the borrower’s income and family size.
Benefits and Considerations
Federal Parent PLUS Loans offer several benefits, such as the ability to borrow the full cost of education, a fixed interest rate, and flexible repayment options. However, there are also some considerations to keep in mind. Since these loans are credit-based, parents may need to improve their credit score or obtain an endorser if they are unable to pass the credit check. Additionally, Federal Parent PLUS Loans are not dischargeable in bankruptcy, which means that borrowers are responsible for repaying the full amount of the loan, even if they declare bankruptcy.
In conclusion, a Federal Parent PLUS Loan is a valuable financial tool for parents who need additional funds to help pay for their child’s education. Understanding the eligibility requirements, application process, interest rates, and repayment options can help parents make informed decisions about borrowing for their child’s education.
