All About Parent Plus Loans
The pros and cons of borrowing for your kid
Recently, I was in conversation with another parent of a rising high school senior when the topic turned, as it almost inevitably does, to the upcoming college application season.
When she asked where my son was planning to apply, I shared some of the big four year schools on his list and then mentioned that I was also making him add at least one community college and one private college to the mix. She looked a little surprised by this. I explained that because my son will almost certainly have to take out student loans to fund at least part of his education, I wanted to make sure he explored all his options. When the time comes to compare financial aid offers, my hope is that he’ll be able to make an informed choice about the best way to meet his educational goals, while also keeping his eventual student loan debt to a manageable level.
After a little more conversation, this other mom paused for a moment and then told me that she was comforted by the fact that I had shared that my son will probably graduate with student loans. She said she sometimes felt that while it is totally socially acceptable to complain about the costs of college, it can still feel kind of taboo (in her social circle) to talk about your needing to take out loans, “like you are admitting that you didn’t do a good enough job saving”.
(FWIW, I would not frame it like this and money stuff is complicated for lots of good parents)
I’m a big believer in talking openly about money stuff, so I’ve shared (both in writing and in the college talks I give) that I do not have fully funded college funds for my kids. I just opened my son’s 529 plan about four years ago and have been playing catch-up since. My husband and I made the choice to focus on retirement contributions for me and paying off our respective student loans first, which wasn’t an easy feat when we had about $70,000 in loans between us1. I still feel like that was the right choice for our family (the day I made my last student loan payment was a VERY GOOD DAY). It’s also one that I’ve talked openly about with both the kids, who know that they’ll get some financial help from us for college but not enough to cover it all.
And while I might talk more openly about the reality of how we are planning to pay for college than some folks might be comfortable with, the truth is that there are A LOT of parents who aren’t in a position to fully fund their kid’s college education.
According to research, most parents say they want their child to go to college and most parents want to be able help cover all or some of their child’s costs to do so. While some families (particularly those in the upper income brackets) are able to fully cover the cost of higher education through 529 or other savings accounts2, a recent Sallie Mae report indicated that a troubling number of parents (21%) dip into their retirement accounts to help cover the costs of college while another 28% turned to parent or private loans to supplement their child’s financial aid package.
Given that between 15-20%3 of parents of new college students apply for Parent Plus Loans every year, it’s worth taking a closer look at how these loans work, who qualifies for them, and what parents should keep in mind before they sign on the dotted line.
What are Parent Plus Loans?
Parent Plus Loans are federal loans that can be used to pay for educational expenses not covered by other forms of financial aid. These loans can be helpful to families who have don’t have the financial resources on hand to cover the gap between the financial aid their child was offered and the cost of attendance at the college of their choice. This includes both lower income families and middle and upper middle class families that may not qualify for grant aid due to family income4 but who haven’t had the opportunity to save as much as they might have wanted for a variety of reasons.
(Let’s be real: parents who are roughly in my age bracket have had some hard financial squeezes trying to pay first for childcare costs and then ever increasing costs for housing while also, in a lot of cases, paying off their own student debt)
These loans have noticeably higher interest rates than other federal student loan options (current rate for Parent Plus Loans is 9.08% compared to 6.53% for Direct Subsidized and Direct Unsubsidized Loans) but also allow for a lot more borrowing than a student can do with Direct Loans, which have annual caps:
In comparison, a parent could potentially borrow a lot more than that through the PLUS loan program. For example, a student who is attending a school with a high cost of attendance (let’s say $60,000 for easy math) whose child gets a $15,000 institutional award and takes out $5,500 in Direct Loans would have a remaining cost of $39,500. Under past rules, parents could potentially borrow up to that full amount through the PLUS Loan. Multiply that by four years and you can see that PLUS loans can add it to be a significant source of debt for parent borrowers.
By some estimates, approximately 3.9 million Americans are currently holding an eye-popping $112 billion in debt from Parent Plus Loans. Historically, these loans have not been eligible for income based repayment programs, so the monthly repayment cost of these loans is generally higher than the monthly cost for other federal student loans the student might take out. While the average amount of debt held by Parent Plus Loan borrowers is around $30,000 to $40,000, some parents (especially those who take out loans for multiple children) have much higher balances than that.
How Do You Get a Parent Plus Loan?
Parents wishing to take out a Parent Plus Loan must first make sure they have a FSA ID , which they would have created prior to doing the FAFSA. Because a credit check is required as part of the Plus Loan application, parents should make sure that they don’t have any active security freezes on their credit bureau records prior to starting the application.
Parents will complete a free online application that will ask them basic information about themselves and their students (including asking for Social Security number) as well as selecting which college or university the student will be attending. Parents will have the option to choose the amount of the loan they are requesting or to request the maximum loan amount that they are eligible for, as determined by the college the student will be attending.
As noted above, a credit check is required for Parent Plus Loans. While there is no minimum score requirement listed, applications may be denied for parents who have “adverse credit history” issues like a recent bankruptcy, existing student loans being in default, or other delinquencies in their credit accounts.
What Are the Benefits of Parent Plus Loans?
There are a couple of benefits to Parent Plus Loans:
The loans are at a fixed interest rate5 that is often more competitive than the interest rates on many private loans (though credit history and lender options means this can vary from borrower to borrower).
Unlike federal Direct student loans, which have fairly low caps on the amount that can be borrowed each year, parents could, historically, borrow up to the cost of attendance minus other financial aid offered. For students who are attending higher cost institutions this can mean that parents could have the option to borrow tens of thousands of dollars a year, if needed, to fill a large financial gap.
Parents can request a deferment while their child is enrolled at least half-time in school so they don’t have to begin making payments right away (though interest will still accrue during that time)
The parent is shifting the burden of loan debt to themselves rather than having their child take on significant private loan debt… though this may or may not be a benefit, depending a family’s values and financial circumstances.
What are the Risks of Parent Plus Loans?
There are a couple of fairly obvious risks for Parent PLUS Loans:
The person who is accruing the debt isn’t the one getting the education nor the subsequent potential boost to their earning potential that comes from earning a new credential
Parents are on the hook for the debt, even if their kid never graduates or fails all their classes. I’ve had some conversations with parents whose kids were on academic probation or suspension and some of them were quite sick at the thought they had taken on $20,000 in loan debt and their kid didn’t actually make any meaningful progress toward graduation. There is some emotional risk here, for sure.
Parents are taking on additional debt as they near retirement age, which may significantly limit their ability to retire, especially for lower income parents. These loans, like other student loans, aren’t eligible for forgiveness or disbursement in bankruptcy for parents who are really struggling.
Another risk of Parent Plus Loans is the potential for tension between parents and child about who is responsible for making the payments on these loans. According to the Sallie Mae report referenced above, “61% of families where the parent borrowed expect the student to help repay” the loans which could be fine … except that only “31% of the borrowing families shared that they discussed who would be responsible for paying back parent loans”. That can make for a REAL hard conversation after graduation.
What’s the Future for Parent Plus Loans?
With the recent passage of the federal FY25 Budget Reconciliation Package (I am *not* calling it the big, beautiful anything), there is a major change coming to Parent PLUS loans in the form of a new borrowing cap. Starting in the 2026-2027 academic year, parents will be limited to borrowing $20,000 per student annually and given a $65,000 per student lifetime cap.
Now, here is where I say something that I don’t usually say when it comes to financial aid policy from the current administration6: I don’t hate this.
I’ve been concerned over the years that there are too many families getting to significant debt from Parent PLUS Loans, especially when some data shows that almost 40% of Parent PLUS Loan borrowers still owe money 20 years after they took the loan out. It frankly worries me when I think about people taking on average of almost $40,000 (and past six figures for some borrowers) loan debt as they are nearing retirement age, especially when I read horror stories about people having their Social Security payments garnished for being in default on these loans.
I do, however, worry that a cap on Parent PLUS Loans may push more borrowers (students AND parents) into the private loan market, which can be very expensive, especially for families who may have less than perfect credit or need to borrow larger amounts.
Final Thoughts
I’m both glad that Parent PLUS Loans exist, because I do prefer them as a loan option to private loans (in most circumstances), and concerned that the ability to borrow such large amounts has gotten too many families into trouble. I’ll also share a potentially unpopular opinion: I think the availability of these loans has allowed some families to not confront the reality that their kid’s top choice school is just too expensive for them. In my occasionally humble opinion, needing to borrow tens of thousands of dollars a year is probably a red flag that the student should be considering some other, lower cost alternatives (including potentially starting at a community college and transferring). I fear that some parents borrow out of a sense of guilt for not having more ability to help fund their kid’s education as well as out of love and a desire to see their child go to the school of their dreams. Love, hope, guilt, and money can be a dangerous combination, especially for families who may not have fully funded retirement accounts.
Parents considering this option need to do so with clear eyes (can we handle adding $500+ in monthly payments for the next 10 years to our budget? What if our kid dropped out or flunked classes, would this harm our relationship? Will this mean we have to work longer?) and with open communication with their kids, especially if they have an expectation that the kid is going to play a role in paying these loans back.
FWIW, I’ve told my son that we will not be taking out parent loans to fund his education and that I want him to avoid private loans, so that does mean that there are some schools that simply wouldn’t be a financial option for us and that’s okay. There is no such thing as one perfect college and my retirement isn’t going to fund itself.
Questions about Parent PLUS Loans or other kinds of loans? Hit me in the comments!
Full disclosure: it was mostly mine and a mixture of loans from my undergrad and phd programs.
Or through generational wealth in the form of grandparent who are willing to help cover the cost
Depending on the year
This is one of those areas where I have a lot of sympathy for people who are living in high cost of living areas because the FAFSA formulas really don’t account for the fact that $85,000 a year is a wildly different lifestyle in Salina, Kansas vs San Jose, California
I am financially conservative when it comes to variable interest rates - I don’t like to take on debt and not have a stable repayment amount
As always, all the writing here represents my views as a private citizen and not those of any of my current, former, or future employers.