What Is A Parent PLUS Loan

Q: What is a parent PLUS Loan?

A: Federal PLUS Loans are student loans borrowed by a parent on behalf of a child to help pay for tuition and related expenses for college. Unlike, other federal student loans for college, Parent PLUS Loans are based upon the borrowers credit profile. Since it is the parent borrowing the student loan, this means that the parent, and not the child will be subjected to the credit check, as well as be held responsible for repaying the student loan. There are two basic requirements individuals will need to comply with in order to be eligible for Federal Parent PLUS Loans: 1.) The child must be enrolled in school at least part-time. 2.) The parent or legal guardian taking out the Federal Parent PLUS Loan must pass the required credit check.

Why would a parent want to utilize a Parent PLUS Loan? Parent PLUS Loans allow a parent to borrow a low interest, federally guaranteed student loan, which can cover the total cost of the education (including expenses outside of just tuition, such as room and board). Typically, Parent PLUS loans offer lower interest rates and more flexible repayment terms when compared to a private student loan borrowed by the child. The interest rates on Federal Parent PLUS Loans are adjusted every year (on July 1st) with a cap of 9%. Parent PLUS Loans offer multiple repayment options such as: monthly interest and principal, pay only the interest while student is in school, or a monthly payment plan based on percentage of income. Parent PLUS loans have a 10 year term and the loans can be paid off sooner then scheduled with no prepayment penalty.