Parent PLUS Loans and Covering College Costs

Is that Parent PLUS Loan listed on your child's college financial aid offer letter the right choice for your family?

During college decision season, many families open award letters from multiple schools offering more than just grants and scholarships. Often, families with a middle class income find themselves with an offer for a Parent PLUS Loan on the award letter and assume it’s a special form of financial aid. But the Parent PLUS Loan is still just a loan and needs to be repaid like any other. The Parent PLUS Loan may be good for some, but not the right fit for others. Here are some things to consider before committing to the federal program:

You don’t have to take Parent PLUS just because it’s offered

Remember, financial aid award letters are an offer. Accepting grants and scholarships should be an automatic. However, the Parent PLUS Loan is only supplemental. It may be used to cover the remaining college bill, but if a very large amount is required, it may be time to have a deeper discussion with your child about college costs and options available financially.

It’s in the parent’s name only

Like the name of the program says, Parent PLUS Loans are in the parent’s name, not the student’s. Since the award letter is addressed to the student, it’s easy to get this confused. The student’s credit history would be completely uninvolved if this loan is successfully repaid, even if it is the student supporting the payments on behalf of the parent.

No direct loan refinancing is available

Once originated, there is no way to refinance the Direct Parent PLUS Loan through the Federal Direct Consolidation Program to earn a rate reduction, although they can provide consolidation using the weighted average of all Parent PLUS Loans combined. Some parents turn to home equity with a lower rate to pay off their Parent PLUS Loan instead.

Full repayment begins immediately

Be ready to begin full repayment on the Parent PLUS Loan as soon as it is disbursed. If the family faces financial hardship, an appeal may be submitted to adjust payments, but the debts will continue to accrue.

There is a fixed 6.41% interest rate

This rate will not increase, but it will also not be reduced later in cases of federal student loan consolidation.

Origination fee is 4.288%

This is actually a comparatively high origination fee, and it basically covering the risk of easy credit approvals for most applicants. The amount is removed from the loan at the time of origination. That means if you apply for $10,000, only $9,571.20 actually pays to the account.

Other options are available

First and foremost, ensure that you and your child have exhausted all scholarship and grant options available. Private scholarships, institution-sponsored awards at your child’s school, community grants, and more: scholarship opportunities are everywhere and extraordinarily varied, so take advantage. Don't stop at whatever is listed in your official award letter.

Then, if you still have gaps to fill, take a look at a private student loan to compare your options. A private loan may provide more competitive rates and zero origination fees, making it a better option for some but not all families. A private loan is in the student’s name, and the parent can cosign to help them get approved. Private loans carry more consumer protections to prevent borrowers from over-borrowing, but as with any debt for education, carefully consider the alternatives and have a plan for repayment.

Like what you’re reading?

Join the CollegeXpress community! Create a free account and we’ll notify you about new articles, scholarship deadlines, and more.

Join Now

Join our community of
over 5 million students!

CollegeXpress has everything you need to simplify your college search, get connected to schools, and find your perfect fit.

Join CollegeXpress
Amelia

Amelia

High School Class of 2023

CollegeXpress helped open me up to many colleges that fit my interests. I’m only a sophomore in high school, so I like having a lot to look at, and CX does a great job of picking colleges that meet my wants. It's a great website that I'll continue to use until it comes time for me to apply for colleges. I also like that it notifies me through email with options to look at. Thanks CX!

Victoria Fuss

Victoria Fuss

March Madness Scholarship Winner, Class of 2022

CollegeXpress has helped me dramatically. Moving on to the next level has been a dream of my mine since I was just a young kid, and the support and help CollegeXpress has given me will help me further my education. I couldn’t be more grateful to everyone at CollegeXpress!

Lu Diehl

Lu Diehl

High School Class of 2022

I never would have found the college I plan on attending without CollegeXpress! I've always been a person of ambition and have been dreaming of studying and working on my passion for law, legal studies, and political science. Washington College is where I plan on pursuing my career. My journey with my education has been difficult, and oftentimes, I was told I would never amount to much, but now I'm dual enrolled at Caroll Community College and have had experience in the fields I am dedicated to. Without the help of CollegeXpress (even in its early days), I would never have found Washington College and the information I need to apply and become a part of their community.

Keydi Banegas

Keydi Banegas

Scholarship for Students of Color Winner, Class of 2022

CollegeXpress is a great application that helped me search for many different scholarships, and it narrows the scholarships depending on how you set your profile. Not only that, but it helps you choose different colleges to apply to by finding matches through the description of your profile. It was the best experience for me.

Makiyah Murray

Makiyah Murray

High School Class of 2021

The college application process has been a stressful one, but CollegeXpress has eased some of that stress with its readily available college resources. At the beginning of the process, I frequently used the college search feature, and now that I’m almost done applying, I’ve started using the scholarship search. Both of these resources have made it easier to find relevant information.

College Matches
X

Colleges You May Be Interested In

DePaul University

Chicago, IL

SUNY Polytechnic Institute

Utica and Albany, NY