Pro and Cons of Borrowing Federal Parent PLUS Loans

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July 28, 2021

As their children get ready to head to college, parents quickly realize the truth: a college education has never been more expensive!

Some students are able to pay for college with financial aid, scholarships and grants, but that isn’t always enough to cover all of the costs. Many students end up borrowing a student loan to cover the difference.

For students, a federal loan generally offers a lower interest rate and better repayment options than a private student loan. But, there are hard limits to how much a student can get in the form of federal loans each academic year. To pay the rest, more and more parents are taking out parent loans such as the Parent PLUS loan or a private parent loan.

A federal DIRECT parent PLUS Loan is an option for biological or adoptive parents of a dependent undergraduate student.

Here are some things a parent borrower should consider before taking out a parent Direct PLUS Loan.

Pros of Borrowing Parent Loans

  • For the federal Parent PLUS loan , the amount you can borrow is not limited like traditional federal student loans. You can borrow what your child needs up to the cost of attendance for that academic year, less any other financial aid they receive
  • Your interest rate remains fixed for the lifetime of the PLUS loan. This helps you plan your repayment and not worry about any curveballs regarding what you owe
  • It’s possible to request a PLUS loan deferment while the student is in school, which gives you more options when it comes to paying back the loan
  • Parent PLUS loans are eligible for the standard repayment plan, or other flexible options such as the graduated or extended repayment plans
  • A federal PLUS loan may be eligible for the Income Contingent Repayment, where payments are based on your income and family size, if you consolidate it into a Direct Consolidation Loan
  • A Parent PLUS loan could also be eligible for Public Service Loan Forgiveness if consolidated into a Direct Loan

Cons of Borrowing Parent Direct PLUS Loans

  • The Parent PLUS loan has a higher interest rate than other federal student loans
  • Parent PLUS loan borrowers also pay a loan fee, or, origination fee, which could make the loan more expensive than a loan from a private lender
  • There will be a credit check, and you may have trouble getting a federal Direct PLUS Loan if you have adverse credit history
  • Because there’s no limit to the amount of loan funds you can borrow, it’s possible to borrow too much and end up in risk going into default
  • You must start paying parent loans back right away unless you request a deferment
  • Unlike other federal student loans, the parent PLUS loan isn’t available to as many income-based repayment options

The Final Verdict

Only you can decide whether a federal parent loan is best for you and for your child’s education. In some cases, a private loan may offer a better interest rate and and conditions to suit your student’s needs. However, make sure you have fully exhausted other potential options, including grants, scholarships, federal student loan options and other federal student aid before you apply.

A good place to start:

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