College funding is complicated and stressful for many families. One option for funding your child’s college education beyond leveraging a 529 Plan or traditional student loans is the Parent PLUS Loan. Many parents choose to apply for a Parent PLUS Loan as part of their funding strategy. Unfortunately, many of those same parents don’t know much about the loan itself! Let’s review what the Parent PLUS loan is, and what you can expect in terms of how it impacts your financial plan.
A Parent PLUS Loan is a form of the Direct PLUS loan. This is a federal student loan that allows a parent or guardian of the attending college student to assist with the cost of their college education. To receive a Parent PLUS loan, you must:
Parent PLUS loans that are dispersed before July 2021 are currently at a 5.30% fixed interest rate for the life of the loan. For many borrowers looking to fund the cost of college, this fixed interest rate can be a notable selling point of the Parent PLUS loan. Additionally, payments don’t need to be made while your student is in school so long as you request a deferment.
However, it is important to note that even though you may not be required to make payments, interest will still accrue on the loan. There is also a loan fee on all Parent PLUS loans that are dispersed. These fees change depending on when the loan is dispersed, so it’s important to contact your loan provider to learn more.
Parents, not students, are responsible for repaying a Parent PLUS loan. They can be repaid using a Standard, Graduated, or Extended payment plan. In some cases, your loan may be eligible for forgiveness if your student qualifies for programs like PSLF or Teacher Loan Forgiveness.
If, for any reason, you do want to make your student responsible for your Parent PLUS loan repayment, you do have one option. Some students choose to refinance and consolidate their student loans for a better interest rate or monthly payment after graduation. When going through this process, it’s possible to consolidate your Parent PLUS loan alongside any other loans they may have. When this happens, your student will take ownership of the loan.
Navigating the maze that is college planning can be exhausting for any parent. If you need help, please contact us today. We’re here to help guide you through the process, and ensure that any college funding decisions your family makes are in your best interest.
Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.
"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.