How does a Parent PLUS Loan work?

What is a Parent PLUS loan? 

Undergraduate students have certain federal student loan lending limits. After hitting this limit, there are two main loan options to cover the cost of attendance. One is a Parent PLUS loan, which is taken out by the parents of the student, or a private loan, which is usually taken out by students and parents together. 


Parent PLUS loans are also provided by the federal government. Unlike direct subsidized and unsubsidized federal loans, Parent PLUS Loans have a much higher interest rate and origination fee. 


Parent PLUS Interest Rates

A Parent PLUS Loan disbursed between now and July 1st, 2021 will have a 5.3% fixed interest rate, with a 4.2% origination fee. We predict that after July 1st, the interest rate will increase by around 1% due to current trendlines. Read more on our calculations below. Therefore, we expect Parent PLUS rates to be above 6% plus a ~4% origination fee

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In comparison, private loans often do not have an origination fee and can have considerably lower interest rates for borrowers with good credit. The difference in interest rates can mean saving thousands of dollars over the life of the loan. 


Visualizing Your Options: 

Federal Parent PLUS Loan, Parent PLUS Loan, PLUS Loan, Parent Loan, Direct Loan, Private Loan, Interest Rate, Fixed Interest Rate, Origination Fee

Parents with a good credit score (650+) should consider private loans as a financing option, as they may help you save money now and in the future. 


How to get a Parent PLUS loan

You can apply for a Parent PLUS loan directly through the studentaid.gov website, here, or through your child’s financial aid office. If you’re applying online, you’ll need to create an account to get started, and it takes about 20 minutes to complete. Have your school name, student information, personal information, and employment information ready. 


How to compare your options through Juno

We suggest you join Juno at your earliest convenience and check your rates for free through our lending partner when our negotiated deal launches. We will have a calculator available to compare the cost of both a Parent PLUS and a private loan over time. That way, you’ll be able to decide what is the best option for you. 


Our Calculations

How do we project the PLUS interest rate will increase? Every May, the federal government sets federal student loan rates based on the Ten-Year Treasury Note rate. Here’s the formula used for different types of loans, from the Congressional Budget Office (CBO):

  • Direct subsidized and unsubsidized loans for undergraduates: 10-year Treasury + 2.05%, capped at 8.25%
  • Parent PLUS loans: 10-year Treasury + 4.60%, capped at 10.50%

The ten-year Treasury note was around 0.7% last year, a historic low as a reaction to the COVID-19 pandemic. Currently, the ten-year Treasury note is more than double that at 1.65% at the time of publication. Therefore, we expect the Parent PLUS loans will be set above 6% after July 1st, 2021.