What Is a Parent Plus Loan?
A Parent PLUS loan is a type of federal student loan that the U.S. Department of Education provides to biological or adoptive parents (and in some cases, stepparents) of dependent undergraduate students to help cover educational expenses. This financing instrument falls under the broader category of student financing, designed to supplement other forms of financial aid. Parent PLUS loans can cover the full cost of attendance at an eligible school, minus any other aid the student receives. Unlike some other federal loans, eligibility for a Parent PLUS loan typically involves a credit check for the parent borrower, though the criteria are less stringent than for private loans.
History and Origin
Federal student aid programs have evolved significantly since their inception. The framework for modern federal loans was largely established by the Higher Education Act of 1965. Parent PLUS loans were specifically created by Congress in 1980, initially allowing parents to borrow up to $3,000 for their child's undergraduate education.23 In the early years, these loans were primarily intended to provide liquidity for higher-asset families who needed to cover their Expected Family Contribution (EFC) upfront.22,21
A notable expansion occurred in 1992 when Congress eliminated borrowing limits for Parent PLUS loans, permitting parents to borrow up to the full cost of attendance with only a minimal credit check.20 This change significantly broadened the scope and availability of these loans, making them a more prominent component of federal student aid packages.
Key Takeaways
- Parent PLUS loans are federal loans issued by the U.S. Department of Education to parents of dependent undergraduate students.
- They can cover educational costs up to the school's total cost of attendance, less any other aid received.
- Borrower eligibility is subject to a credit check, with provisions for those with adverse credit histories.
- These loans carry a fixed interest rate and an origination fee.
- Parents are responsible for repaying the Parent PLUS loan, not the student.
Interpreting the Parent PLUS Loan
A Parent PLUS loan is interpreted as a means for parents to bridge the gap between other available financial aid and the total cost of a student's education. Schools determine the maximum loan amount, which is the total cost of attendance minus any other aid the student receives. For example, if a school's cost of attendance is $30,000 and the student receives $10,000 in scholarships and other federal aid, the Parent PLUS loan can cover up to $20,000. Understanding the repayment options and the accrued interest is crucial for parents considering this type of debt.
Hypothetical Example
Consider the case of the Miller family, whose daughter, Sarah, is attending State University with a total cost of attendance of $35,000 for the academic year. Sarah has received a $5,000 scholarship and $7,500 in Direct Subsidized and Unsubsidized Loans.
To cover the remaining balance, the Millers decide to apply for a Parent PLUS loan.
The calculation for the maximum Parent PLUS loan they can borrow is:
Total Cost of Attendance - Other Financial Aid = Maximum Parent PLUS Loan
$35,000 (Cost of Attendance) - ($5,000 (Scholarship) + $7,500 (Direct Loans)) = $22,500
After applying and passing the credit check, the Millers are approved for a Parent PLUS loan of $22,500. This amount will be sent directly to State University through a process known as disbursement to cover tuition, fees, and other direct charges, with any remaining funds potentially disbursed to the Millers or Sarah for other educational expenses.
Practical Applications
Parent PLUS loans are commonly used in situations where other forms of financial assistance, such as scholarships, grants, and Direct Loans for students, do not fully cover the cost of higher education. They serve as a flexible option for families needing additional funds. The application process typically involves the student completing the Free Application for Federal Student Aid (FAFSA), followed by the parent applying for the PLUS loan through Federal Student Aid or their child's school.19,18
In the broader context of household debt in the United States, student loans, including Parent PLUS loans, represent a significant category. According to reports from the Federal Reserve Bank of New York, student loan balances were approximately $1.63 trillion in the first quarter of 2025.17,16 This highlights the substantial role these loans play in financing education across the country.
Limitations and Criticisms
Despite their utility, Parent PLUS loans have faced various criticisms. One significant concern is that, unlike other federal student loans, Parent PLUS loans typically have higher interest rates and can come with substantial origination fees, which are deducted from the loan amount before disbursement.15
Another point of contention is the credit check requirement. While less strict than for private loans, parents with an "adverse credit history" may be denied. However, they can still qualify by obtaining an endorser (similar to a cosigner) or documenting extenuating circumstances.14 Critics, including the Urban Institute, have pointed out that the program's structure can lead to low-income parents taking on considerable debt that they struggle to repay, as the lending process often does not fully consider a parent's ability to repay the loan beyond a basic credit screening.13 This can result in increased rates of default among certain demographics. Additionally, while some repayment options, such as income-driven repayment, are available for Parent PLUS loans, they often require the parent to first consolidate loans, and the terms may be less generous than those offered to students directly.12
Parent Plus Loan vs. Student Loan
The Parent PLUS loan is a specific type of federal student loan but differs significantly from loans taken out directly by students. The primary distinction lies in the borrower: a Parent PLUS loan is borrowed by the parent, making the parent solely responsible for repayment, whereas other federal student loans (such as Direct Subsidized and Unsubsidized Loans) are borrowed by the student.
Key differences include:
- Borrower: Parent for a Parent PLUS loan; student for typical federal student loans.
- Credit Check: Required for Parent PLUS loans; generally not required for most federal student loans (e.g., Direct Subsidized and Unsubsidized Loans).
- Interest Rates and Fees: Parent PLUS loans often have higher fixed interest rates and higher origination fees compared to Direct Loans for undergraduate students.11
- Repayment Start: Repayment for Parent PLUS loans often begins shortly after the loan is fully disbursed, though deferment options are available.10 Federal student loans typically have a grace period after the student leaves school or drops below half-time enrollment before repayment begins.9
- Subsidies: Parent PLUS loans are unsubsidized, meaning interest accrues from the time of disbursement. Some federal student loans (Direct Subsidized Loans) do not accrue interest while the student is in school or during periods of deferment.
The confusion often arises because both are federal loans used for education, but their terms, borrower responsibilities, and eligibility criteria are distinct.
FAQs
Who is eligible for a Parent PLUS loan?
To be eligible, the borrower must be the biological or adoptive parent (or, in some cases, stepparent) of a dependent undergraduate student enrolled at least half-time at an eligible school. The parent must not have an adverse credit check history, unless certain additional requirements are met, and must meet general eligibility requirements for federal financial aid.8,7
What is the maximum amount I can borrow with a Parent PLUS loan?
Parents can borrow up to the student's full cost of attendance as determined by the school, minus any other financial assistance the student receives. There is no aggregate loan limit.6,5
Do Parent PLUS loans have a fixed or variable interest rate?
Parent PLUS loans have a fixed interest rate for the life of the loan. The rate is set annually based on current market conditions.4,3
Can a Parent PLUS loan be transferred to the student?
No, a Parent PLUS loan cannot be transferred to the student. The parent who borrowed the loan remains responsible for its repayment.
What happens if a parent is denied a Parent PLUS loan due to adverse credit?
If a parent is denied a Parent PLUS loan because of an adverse credit check history, they may still be able to receive the loan by obtaining an endorser who does not have an adverse credit history or by documenting extenuating circumstances to the U.S. Department of Education. If a Parent PLUS loan is denied, the dependent student may become eligible for higher limits on unsubsidized federal student loans.2,1