With the average cost for a year of college in the US up to $35,720, it’s no wonder so many students take out loans. But the average undergraduate borrower receives just $11,836 in student loans each year — a significant gap for most.

That’s where Parent PLUS loans come in. The Department of Education allows parents of dependent, undergraduate students to take out this type of federal student loan on their child’s behalf.

Parent PLUS loans can be an easily accessible option for families to help foot the bill for their children’s college education — something that many families need assistance with. But as with any financial commitment, there are careful considerations parents need to make before taking out a PLUS loan.

Parent PLUS loans: an overview

There’s no limit on PLUS loans (regardless of income), and parents can borrow up to the full cost of attendance minus any other financial aid their student receives. While that may be helpful to some borrowers, it can also quickly lead to taking on more debt than a parent can afford.

Any parent or legal guardian of a student who is enrolled at least part-time in an undergraduate degree program at a Title IV school can apply for a Parent PLUS loan via the Federal Student Aid website. A credit check will be performed as part of the application review process — but if the parent has a negative credit history, they may still qualify if they have a guarantor.

It’s important to be aware that parents are often offered a PLUS loan without ever asking for it. Many colleges will include PLUS loans in awards letters notifying students what financial aid they’ve been offered, so carefully reviewing aid packages before accepting is a must.

Repaying Parent PLUS loans

By default, borrowers are supposed to start repaying their Parent PLUS loans as soon as the loan has been disbursed, but borrowers can request to defer payment until after their child has graduated or left school.

Parent PLUS loans will start accruing interest immediately after they’re disbursed, even if the borrower is granted a deferment. While the interest rate is fixed for life at the time the loan is taken out, the interest rate for PLUS loans is often steep — in the last few years alone, rates have climbed as high as 7.6%.

Unlike many other federal loans, the repayment plan options for PLUS loans are somewhat limited: borrowers can choose between a standard, graduated, extended, or income-contingent plan. Income-contingent repayment (ICR) could help make monthly payments more affordable and forgive any outstanding balance after 25 years, but the PLUS loan must have first been added to a Federal Direct Consolidation loan before it is eligible for ICR.

Parent PLUS loan forgiveness and cancellation

ICR plans aren’t the only way these loans can be forgiven. Parent PLUS loans can also qualify for Public Service Loan Forgiveness (PSLF), provided the borrower meets certain eligibility requirements, including working full-time for a nonprofit, government, or other public service organization.

The circumstances under which a Parent PLUS loan can be discharged are limited. Declaring bankruptcy, for example, won’t automatically wipe PLUS loans away — a borrower must demonstrate specific financial hardship caused by the loans. Otherwise, PLUS loans are usually only discharged in the event that the student’s school closes while they’re enrolled, the school commits fraud, if the borrower becomes permanently and totally disabled, or if the borrower or student dies.

Managing Parent PLUS loans

Refinancing federal Parent PLUS loans with a private lender can help ease the strain for some borrowers. In some cases, refinancing can lower monthly payments and reduce the amount of interest a borrower will pay over time. But refinancing has its drawbacks, too: once a Parent PLUS loan has been refinanced, it cannot qualify for ICR, PSLF, or any other federal benefit.

Given the high interest rates, making extra payments to parent PLUS loans to reduce the overall payoff time can be a good strategy for borrowers on traditional (standard, graduated, or extended) repayment plans.

The Milford Bank is here to help

If you’re a Milford Bank customer with student debt, whether from Parent PLUS loans or any other type of loan, you’re in luck. The Milford Bank now offers Candidly as a value-added service to help customers manage — and pay off! — their student debt. Candid.ly offers smart tools that help you move beyond your student debt, including:

• Reassess: Find, compare, and enroll in alternative repayment plans — including income-contingent repayment — in minutes.
• Refinance: Get pre-qualified refinancing offers from dozens of lenders
• Round Up: Collect spare change from everyday purchases and convert it into student loan payments
• Giveback: Pay off your student debt with cash back rewards from online shopping

Visit milfordbank.com/other-services/candidly/ to learn more and activate your free account today.