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Advantages and Disadvantages of Parent PLUS Loans

Many families of students who want to attend college do everything possible to help financially. One option is a parent PLUS loan. While this type of financial aid may sound like a great idea upfront, they have very real advantages and disadvantages you should understand before using them. Explore all your pathways to more affordable education before committing to anything.

What Is a Parent PLUS Loan?

Before weighing the pros and cons of getting one of these loans, it is important to understand exactly what it is. This type of financial aid comes from the federal government and is one thing that you may be offered after filling out the essential Free Application for Federal Student Aid (FAFSA) form. They are available to biological parents and legal guardians of undergraduate students who have a sufficient credit score and qualify for student aid of any kind.

Since they are loans, you do have to pay them back once the student leaves school. The current interest rate stands at 6.28% and will not change for existing loans throughout the repayment period. These loans are 100% the responsibility of the parent or guardian and not the student.

Advantages of a Parent PLUS Loan

The most obvious benefit of this type of federal financial aid is the fact that you will have more money to send your child to college or university. This can improve your child’s educational opportunity to a considerable degree. Also, because it is a fixed rate loan, you will never experience any increase in your repayment bills. This can last 10 or even 25 years depending on the amount of money you borrowed to begin with.

Disadvantages of a Parent PLUS Loan

Although repayment plans are quite flexible, the overall interest rate does not represent the lowest you may be able to find for other loan options. If you have a high credit score, it may make more sense to take out private loans or find other funding sources. However, if you experience a financial setback or catastrophe in the future, you cannot discharge a parent PLUS loan through bankruptcy. If your income changes, you are still responsible for the entire monthly amount with no chance of alternate repayment options.

One of the main disadvantages of this type of federal financial aid is the lack of grace period for repayment. Unlike loans that are given to the student, these do not include a six-month break after graduation in order to find employment and start paying back the borrowed money. You have to start paying as soon as they graduate.

Ultimately, the decision to take a Parent PLUS loan out for your child's education depends on a wide variety of financial factors. After filling out the FAFSA completely, this may be one of the options offered to you. If you are confident that the repayment terms and interest rate are appropriate for your situation, and you are careful not to borrow more than you need, they can help your child achieve their dreams of a college degree.