What Are Parent Loans and How Do They Work?
Considering parent loans for college? Get a comprehensive guide on how these loans work, from eligibility to repayment strategies.
Parent loans are a financial resource for families funding higher education expenses. They assist with costs beyond other financial aid, enabling parents to contribute directly to their child’s educational journey and meet tuition, housing, and other academic expenses.
Defining Parent Loans
Parent loans, formally known as Direct PLUS Loans, are federal loans from the U.S. Department of Education for eligible parents of dependent undergraduate students. They help cover educational costs not addressed by other financial aid. The parent, not the student, is the borrower and solely responsible for repayment. Funds are disbursed directly to the student’s school for charges like tuition and fees, with any remaining amount going to the parent or, with authorization, to the student for other educational expenses.
Eligibility and Application Requirements
To be eligible for a Direct PLUS Loan, both the parent and student must meet specific criteria. The parent must be a biological or adoptive parent of a dependent undergraduate student, or a stepparent if considered a parent for FAFSA purposes. The parent must not have an adverse credit history. An endorser, who agrees to repay the loan if the parent borrower does not, can allow for eligibility if the parent has an adverse credit history. An adverse credit history might include accounts 90 or more days delinquent with a total outstanding balance over $2,085, or a bankruptcy discharge within the last five years.
The student must be enrolled at least half-time in an eligible program at an eligible educational institution. Both the parent and student must also meet general eligibility requirements for federal student aid, including being a U.S. citizen or eligible non-citizen. The Free Application for Federal Student Aid (FAFSA) must be completed by the student before applying for a Direct PLUS Loan.
Parents will need their verified Federal Student Aid (FSA) ID, which serves as a legal electronic signature. Personal information, such as name, Social Security number, address, employer details, and financial information, will be required. The student’s personal information is also necessary to complete the application.
Understanding Loan Terms and Repayment
Direct PLUS Loans feature a fixed interest rate for the life of the loan. For loans disbursed in the 2025-2026 academic year, the interest rate is 8.94%. A loan fee, currently 4.228% of the total loan amount, is proportionately deducted from each disbursement.
The maximum amount a parent can borrow is determined by the student’s cost of attendance, reduced by any other financial aid the student receives. There are no aggregate loan limits, meaning parents can continue to borrow up to this calculated amount each year. Loan funds are disbursed to the school and first applied to institutional charges such as tuition and fees. Any remaining funds are then provided to the parent or student to cover other educational expenses.
Repayment generally begins after the loan has been fully disbursed. Parents can request a deferment to postpone payments while the student is enrolled at least half-time and for an additional six months after the student graduates, leaves school, or drops below half-time enrollment. Interest accrues during periods of deferment or forbearance, and this accrued interest may be capitalized, or added to the principal balance, when repayment begins. Forbearance is another option for temporary payment postponement due to short-term financial hardship.
Direct PLUS Loans offer several repayment plan options. These include the Standard Repayment Plan, which involves fixed monthly payments over a period of up to 10 years, and the Graduated Repayment Plan, where payments start lower and gradually increase over time. An Extended Repayment Plan allows for a longer repayment period, up to 25 years, with either fixed or gradually increasing payments. While Direct PLUS Loans are not directly eligible for most income-driven repayment plans, parents can consolidate their Direct PLUS Loans into a Direct Consolidation Loan to then become eligible for the Income-Contingent Repayment (ICR) Plan. This consolidation can offer more flexible payment options based on income and family size.
Applying for Parent Loans
The application for a Direct PLUS Loan is completed online, primarily through StudentAid.gov. Before parents can submit an application, the student must have completed the Free Application for Federal Student Aid (FAFSA).
Parents initiate the application by logging into StudentAid.gov using their FSA ID and selecting the Direct PLUS Loan option. The online application guides the parent through providing personal and financial information. A credit check is performed to assess eligibility. If an adverse credit history is found, the parent will be notified of options, such as obtaining an endorser or documenting extenuating circumstances, to qualify.
After submitting the application, the parent must complete a Master Promissory Note (MPN). The MPN is a legal document outlining the loan’s terms and conditions and serves as the borrower’s promise to repay. Parents must complete a separate MPN for each student they are borrowing for. Once the MPN is signed, the school is notified, and if approved, loan funds are disbursed according to the school’s schedule.