PLUS Loans Can Help Pay for College — at a Cost

A college student sits in cap and gown ready to graduate. — (Image credit: Getty Images)

As the cost of college continues to rise, it’s not unusual for parents to discover that student loans, financial aid and savings won’t cover all their child’s expenses. Parent PLUS loans provide a way to bridge the gap, but rising interest rates have made these loans a costly option.

The rate for federal parent PLUS loans taken out between July 1, 2024, and June 30, 2025, is 9.08%, a 33-year high. The rate is fixed for the life of the loan, even if overall interest rates decline. Borrowers must also pay a 4.228% origination fee.

Parents can borrow up to the cost of a child’s college attendance, including tuition, room and board, and textbooks, minus financial aid received by the student. While the absence of a cap may make these loans attractive, it could also encourage parents to borrow more than they can afford to repay, says Mark Kantrowitz, author of How to Appeal for More College Financial Aid.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

The requirements for parent PLUS loans

To qualify for a parent PLUS loan, you must be the biological or adoptive parent (or in some cases, the stepparent) of a student who is enrolled in college at least half-time. As part of the application process, the U.S. Department of Education will conduct a credit check on you. (If you have a security freeze on your credit reports, you’ll need to lift it first.)

You don’t need to have excellent credit to qualify for a PLUS loan. However, if you have an adverse credit history — you’ve defaulted on a loan or discharged debts through bankruptcy during the past five years — you won’t be approved unless you have a co-signer.

Alternatives to PLUS loans

Parents may be able to obtain private student loans at a lower interest rate than they could get on a PLUS loan. As with PLUS loans, private loans allow you to borrow up to the full cost of college for your child, and some private loans offer rates below 5%. Rates on these loans may be fixed or variable. With a variable rate loan, you’ll benefit when rates fall — and the Federal Reserve is widely expected to begin cutting short-term interest rates this year. But when rates eventually rise again, your variable loan rate will go up, too.

To qualify for most private loans, you need a good credit score — typically, a FICO score of 700 or higher — a long work history, and a low debt-to-income ratio. In addition, private student loans lack the protections that federal PLUS loans offer, including income-based repayment, deferral, and loan forgiveness for eligible borrowers.

Whichever option you choose, it’s important to understand that you could be on the hook for loan payments for 10 years — or longer if you enter an extended repayment plan. Before taking out a PLUS or private loan, make sure that your child has exhausted all other options for financial aid, including federal student loans. Those loans have lower rates than PLUS loans — 6.53% for student loans taken out between July 1, 2024, and June 30, 2025. However, they come with annual limits. For the 2024–25 academic year, for example, the maximum amount a first-year undergraduate dependent student can borrow in federal loans is $5,500.

If student loans and other forms of financial aid fail to cover your child’s college costs, consider limiting your own borrowing to no more than the amount of your annual income, Kantrowitz says. If you plan to retire within 10 years, you should borrow proportionately less — for example, half of your annual income if you expect to retire in five years.

Ella Vincent is a personal finance writer who has written about credit, retirement, and employment issues. She has previously written for Motley Fool and Yahoo Finance. She enjoys going to concerts in her native Chicago and watching basketball.