Why You Need To Apply For A Parent PLUS Loan Every Year

To help their children earn their college degrees, more and more parents are taking out loans to cover their child’s education costs. In fact, a recent Sallie Mae study found that 21% of families with college students relied on parent student loans to pay for school.

Federal parent PLUS loans are a popular option because parents can borrow up to the total cost of attendance of their child’s college. As of the first quarter of 2022, 3.7 million parents had outstanding parent PLUS loans.

If you’re considering taking out loans to help your child pay for college, you may be wondering if you have to apply for parent PLUS loans annually. Unfortunately, the government requires applicants to submit a new application every year; otherwise, you won’t qualify for a loan.

Do You Have to Apply for a Parent PLUS Loan Every Year?

Some private student loan lenders offer multi-year approvals, meaning parents can apply once and find out how much they can borrow for the duration of their child’s education. When it comes time to take out more money, the parent can request additional funds without filling out a new application or undergoing a hard credit check.

However, parent PLUS loans don’t work that way—you have to apply for parent PLUS loans every year that your child will be in school to qualify for a loan.

That requirement is necessary because all financial aid (including federal student loans) is awarded based on your current financial and living situation. As your finances or household size changes, your eligibility for financial aid adjusts, too.

When reviewing your application, colleges consider the following factors to calculate how much aid you should receive and what type of assistance to offer you:

  • Household income as reported on your federal tax return
  • Number of dependents currently in college
  • Family size
  • Untaxed income
  • Assets, such as checking or savings account balances, investment accounts or rental properties
  • The cost of attendance at your child’s college

If your income increases, you may be eligible for less federal financial aid. Reductions in income or the addition of a new baby may increase the amount of aid your child can receive, as well.

How to Apply for a Parent PLUS Loan

The application process for parent PLUS loans is relatively simple. To apply for parent PLUS loans, follow these steps:

1. Help Your Child Complete the FAFSA

Your child has to complete the Free Application for Federal Student Aid (FAFSA) to qualify for federal, state and even school-based financial aid. If your child doesn’t submit the FAFSA, you won’t be eligible for parent PLUS loans.

Your child will fill out the FAFSA for the first time as a high school senior. After that, they must renew their FAFSA every year that they’re in school.

Your child can submit the FAFSA online, or they can fill out and mail in a physical copy. According to the Department of Education, most people can fill out the FAFSA in under an hour. For students renewing their FAFSA, it can take even less time.

2. Fill Out the Loan Application

Once your child submits the FAFSA, you can apply for parent PLUS loans. You can usually apply for PLUS loans online, but some colleges have their own procedures. Contact the financial aid office of your child’s college to see what their process is for PLUS loans.

To complete the application, you’ll need to provide the following information:

  • Requested loan amount
  • School name
  • Student information
  • Employer information

The application will prompt you to consent to a credit check. If you have an adverse credit history, your application for a PLUS loan may be denied unless you add a co-signer—someone with good credit who shares responsibility for the loan—to the application.

3. Complete Parent PLUS Master Promissory Note

After being approved for a loan, you’ll have to complete and sign a PLUS loan master promissory note (MPN). The MPN outlines the terms and conditions of the loan, and it’s a legally binding contract. You can view and sign the MPN online.

4. Wait for the Money to Arrive

Your child’s college will apply the parent PLUS loan to your child’s outstanding tuition, room and board, fees and other school-required expenses. If there are funds left over, the money will be sent to you unless you select the option of distributing excess funds directly to your child.

Should I Take Out a Parent PLUS Loan? Pros and Cons

Although parent PLUS loans are a popular option, there are some downsides to keep in mind. Weigh the pros and cons of PLUS loans before submitting your application:

1. You Can Borrow Up to the Total Cost of Attendance

Federal loans for undergraduate students have annual and aggregate limits, preventing a student from taking on more debt. By contrast, parent PLUS loans don’t have limits. You can borrow up to the school-certified cost of attendance. And if you have multiple children, you can take out PLUS loans for each child.

2. Interest Rates and Fees Are High

Although federal loans are known for their low interest rates, PLUS loans carry the highest rates and fees. For loans disbursed during the 2022-23 school year, the interest rate is 7.54%

PLUS loans also have disbursement fees; loans disbursed between October 1, 2020 and September 31, 2023 have a fee of 4.228%. Together, these rates and fees make PLUS loans a more expensive financing option than other types of federal loans.

3. The Parent Is Solely Responsible for the Loan

A common misconception is that the child shares responsibility for a parent PLUS loan. But that’s not true—these loans are only under the parent’s name and the child has no legal obligation to repay it. The government also doesn’t offer a way to transfer the loan to the child.

The only way to change ownership of the loan is to refinance it with a private lender and transfer it to the student.

4. Parent PLUS Loans Have Fewer Repayment Options

Parent PLUS loans have fewer repayment options than other federal student loans. For example, they aren’t eligible for income-driven repayment (IDR) plans unless you consolidate with a direct consolidation loan. Afterward, the only IDR plan you can enroll in is income-contingent repayment.

Parent PLUS Loan Alternatives

If you decide against taking out parent PLUS loans—or if your application is denied—there are other ways to pay for college:

Scholarships and Grants

Encourage your child to pursue as many scholarship and grant opportunities as possible. Your child can qualify for multiple awards that reduce their education expenses. There are many scholarship search engines that can help you find potential scholarships and grants, such as FastWeb and Unigo.

Work-study Programs

Depending on your family’s financial situation, your child may be eligible for federal work-study programs. With this form of financial aid, your child gets a part-time job related to their major and uses their income to cover some education expenses.

Federal Undergraduate Student Loans

Before using parent PLUS loans, see if your child is eligible for their own federal student loans, such as direct subsidized or unsubsidized loans. Undergraduate students may qualify for both loan types, and your child is solely responsible for their repayment.

Federal loans made directly to undergrad students generally come with better terms than those offered to parents. Interest rates and fees are lower, there are more repayment options to choose from and no credit check is required.

Private Parent Loans

Another option to consider is taking out private parent student loans. Offered by banks and financial institutions, private parent loans may have lower interest rates and fees if you’re a well-qualified borrower. Just keep in mind that private loans don’t have the same benefits as federal student loans, so their repayment terms and conditions tend to be stricter.

Financing Your Child’s College Education

As a parent, you want the very best for your child. If you’d like to help them pay for college and intend to take out student loans on their behalf, you can use parent PLUS loans to cover some or all of the cost. You’ll have to apply for parent plus loans annually to get the aid you need.

However, student loans should be the last resort. Make sure you and your child maximize other financial options, including grants, scholarships and work-study programs, before borrowing money.

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