Mapping Your Future: Five facts everyone should know about parent student loans


Five facts everyone should know about parent student loans

By Catherine Mueller

May 01, 2023

Saving for college can be tough.

With the rising costs of just about every living expense lately, setting aside money for a child’s education may have been challenging. Even if a family has managed to save some money, it may not be enough to cover all of a student’s college expenses.

Parents who haven’t been able to save enough may consider a federal parent loan (Direct PLUS Loan) to cover some of the costs.  Here five important facts parents need to know before taking out a Direct PLUS loan:

  1. What amount can be borrowed? The annual maximum amount for a Direct PLUS Loan is the difference between the cost of attendance and any financial aid the student receives.
  2. How much interest and fees are charged on the loan? The current interest rate on a Direct PLUS loan is 0 percent due to the payment pause implemented under the COVID-19 national emergency. New interest rates are determined annually. If you received your Direct PLUS Loan on or after July 1, 2022, and before July 1, 2023, it will have a fixed interest rate of 7.54% after the payment pause ends. There is also a loan fee, which is a percentage of the loan amount. Currently, the fee is 4.228% of the loan amount.
  3. Who is responsible for repayment? Even though the loan benefits the student, the loan is in the parent’s name – not the student’s name – and the parent is responsible for repaying the loan.
  4. How does a parent qualify? The student must complete a Free Application for Federal Student Aid (FAFSA) before a parent can apply for a Direct PLUS loan. No collateral is needed but a credit check is required.
  5. When does the loan have to be repaid? Parents are required to start repaying the loan after the loan is fully disbursed. The loan servicer will provide notification when the first payment is due. However, parents can request a deferment or other repayment options.

Though parents may sometimes argue with their children, one thing is for sure – most parents want the best for their children – even if it means taking on additional debt. However, before taking out a Direct PLUS loan, parents should make sure that they’ve helped their child obtain as much financial aid as possible, especially financial aid (such as scholarships) that does not have to be repaid, and that they are not putting their own financial future at risk.