Pros and Cons of Parent PLUS Student Loans

Several types of loans are offered to students by the federal government. Among them are the type known as Parent PLUS. As indicated by the name, parents are a key part of this variety of loan, as they’re actually made out to parents — as opposed to students.

While there are certain situations in which a Parent PLUS loan might come in handy for potential borrowers, they’re not the best type of loans available. In fact, PLUS loans are generally considered the last resort when it comes to getting federal student aid..

Here are some pros and cons of Parent PLUS student loans.

What Are the Pros of Parent PLUS Loans?

A few things are good about Parent PLUS loans. The most straightforward positive of this type of loan is the fact it will cover however much a student needs in order to attend school, less any loans you’ve already received from federal funding. This is true even if you’re attending a pricier university. As long as the school is part of the Direct Loan Program, you’ll be able to get financing.

Further, it’s possible to get a Parent PLUS loan for a student even with less-than-perfect credit. Those with adverse marks on their credit reports can get co-signers or prove extenuating circumstances. As we’ll see later, however, this can be both a pro and a con of Parent PLUS loans.

What Are the Cons of Parent PLUS Loans?

Since individuals seeking Parent PLUS loans are typically borrowing more than those who don’t require them (as they’re meant to cover expenses after all other federal loan options have been exhausted), these loans don’t come with the best terms and conditions. Of all federal student loans, Parent PLUS loans come with the highest interest rates (currently 6.28%) and steeper origination fees (over 4.2%). High interest rates and fees make loans less affordable for borrowers. This is something you’ll need to take into consideration before taking out a Parent PLUS loan.

Circling back to the fact you don’t need to have good credit to get a Parent PLUS loan, while this is good in the near term, it can be harmful in the long run. Since Parent PLUS loans allow you to borrow however much is necessary to satisfy university requirements, it’s easy to end up biting off more than you can chew. This is especially true when dealing with a parent loan, in which the borrower isn’t the person actually using the money. Losing sight of what’s realistic to pay back to help your child can lead to lasting financial hardship.

Are There Better Alternatives to Parent PLUS Loans?

Fortunately, there are better alternatives to Parent PLUS loans. While it might surprise some people, you might actually be better off finding supplementary loans through a private lender.

Those who have already hit the federal lending limit for Stafford loans should look at what Juno is offering its members. While not a lender, they are able to set students up with the best loan deals around. This is because instead of lending directly, they take bids from lenders who want to have access to Juno’s large base of members. By joining, you’ll be able to take advantage of these low-rate and origination fee-free deals.

Individuals in the U.S. cumulatively owe more in student loans than they do in credit cards or auto loans. Taking out debt in order to pay for education has become a standard part of going to school. Don’t let the costs take their toll on you and your family. Understanding the pros and cons of Parent PLUS loans can help you decide if getting one makes sense for you.