Federal Direct PLUS Loans, commonly referred to as Parent PLUS Loans (PPL’s), are uncollateralized loans made by the U.S. Education Department (ED) to the parents of  dependent students to help pay for college. PPL’s are a type of Federal loan intended for parents, and only parents, who wish to subsidize their child’s college education.

PPL’s have fixed interest rates, flexible repayment options, and the opportunity for loan forgiveness. Parents can borrow up to the amount of the total Cost of Attendance (COA) that their child attends, less other financial aid received.

What They Are and How They Work

The interest rate for PPL’s for the 2024-25 academic year is 9.05%. Borrowers also pay a one-time loan origination fee of 4.228% of the principal borrowed, which is deducted by the ED from each disbursement to the borrower. The PPL interest rate is reset every July 1, but once a loan is made the rate remains fixed for its term. Unless a parent requests a deferment, they are expected to begin making payments after the loan is fully disbursed. During periods of deferment, interest continues to accrue.

To be eligible for a PPL, a parent must:

  1. Be the biological or adoptive parent of a dependent student enrolled at least half-time in a participating postsecondary school,
  1. Meet the general eligibility requirements for Federal student aid, such as being a U.S. citizen or eligible non-citizen, and
  1. Not have had an adverse credit report for at least five years prior to the loan.

The third eligibility factor above stipulates that a borrower cannot have an adverse credit history, which is defined by the ED as follows:

  1. Discharging debt in bankruptcy,
  1. Being subject to a tax lien, or
  1. Being more than 90 days late on a large payment such as rent or mortgage.

If a parent’s credit needs improvement, they may become eligible for a PPL by adding an endorser or documenting extenuating circumstances.

  1. Adding an endorser: Parents have the option of including an endorser on the loan. An endorser is a person with good credit history who agrees to repay the loan if the borrower doesn’t repay it.
  2. Documenting extenuating circumstances: There may be a good reason why a parent’s credit report doesn’t accurately reflect their ability to repay the loan. Examples include a divorce decree in which the parent isn’t required to pay any debt or excessive healthcare costs that can be documented.

Before applying for a PPL, the student must submit the FAFSA to the ED. The FAFSA  becomes available online on October 1 every year (It was delayed for the 2024-25 school year only). The FAFSA process will determine if the student is eligible for subsidized and unsubsidized student loans, Pell Grants, and/or the Work-Study Program. Parents apply for PPL’s separately from this process. The PPL application form is online at StudentAid.gov. Parents may contact their student’s high school financial aid office for assistance.

Pro’s and Con’s of PPL’s

Table A

Pro’s and Con’s of PPL’s 

Pro’s Con’s
Fixed interest rate below market rate High origination fee
Several repayment options Interest rate may be high at time of loan
In-school deferment available Credit history check required
Eligible for other Federal aid Not transferable to the student
Loans for up to the Cost of Attendance Only for parents of undergraduate students

 An eligible parent is automatically qualified to borrow an unlimited  sum of money to pay for their child’s education regardless of their income level. Although it’s imprudent for parents to borrow more than they can repay, they often do so in their desire to help their child attend the best possible school.

Most parents don’t pay for their child’s education using PPL’s, but about 3.8 million families, with $112 billion in outstanding debt, have done so. Many of these families struggle to repay the money that has been borrowed because the level of parental income is not considered when the loan is made. There’s no rule to stop parents from borrowing $100,000 even if their income is below the poverty line. Repayment can take 25 years or more, which is retirement age for many parents. If a parent defaults, the ED deducts from their Social Security payments in order to collect outstanding balances.

The Background of the PPL Program

Why was the PPL program launched in the first place?

There were sound reasons for Congress to authorize PPL’s in 1980. College tuition had increased significantly in the previous decade and many families were struggling to pay college costs out of income. At the time, interest rates were very high, e.g., the average rate for a 30-year home mortgage in 1980 was 14%.

The PPL program, which has a lower-than-market interest rate for uncollateralized debt, was a recognition of  the problem and an attempt to mitigate it. It made it easier for parents to borrow to help pay the cost of their child’s education and it reduced the need for their children to borrow. Initially, parents could only borrow up to $3,000 per year, but in 1992 the borrowing limit was removed as the result of an aggressive lobbying effort by college associations. A large percentage of PPL funds intended by Congress to assist students were absorbed by colleges in further tuition increases.

As the cost of tuition continued to escalate, colleges began to include information about PPL loans in the communications that they sent to families. This served its purpose and demand rose as more and more families took out PPL’s. Although the ED’s rules forbid colleges from preventing a family from taking out a PPL, they shouldn’t encourage it either. A report from the Urban Institute summed up the situation as follows: “Parent PLUS loans are a no-strings attached revenue source for colleges and universities, with the risk shared only by parents and the government.”

Disparities in Impact by Race

Ron Lieber, writing in The New York Times in 2022, had this to say about PPL’s:

“About one in three white borrowers earn more than $110,001, and about one in 10 earn less than $30,000 a year. Black families flip the script, with about one in 10 earning more than $110,001 and about one in three earning less than $30,000 a year. Unsurprisingly, given those income statistics, the Federal government has, during the financial aid application process, told 42 percent of Black borrowers using Parent PLUS that they can’t afford to pay a single cent toward their children’s education. But if there is not enough grant money available — from the government or the college — to subsidize their kids’ tuition in full, these parents and others like them borrow anyway. To put a finer point on it, the Education Department says it doesn’t expect them to pay anything. And yet it lends many of them everything.”

The Search for a Solution

Any solution to the problems of the PPL program must not create yet another incentive for colleges to expropriate Federal funds by coaxing families to pay higher tuition rates. Below are alternatives to increase the efficacy of the PPL program while enabling it to progress unfettered by the self-interest of colleges.

  1. Congress should continue to raise the Pell Grant for low-income students each year. This reduces the need for low-income parents to borrow as much as they do now.
  1. A Congressional act should authorize the ED to impose more stringent requirements for borrowers such as capping the amount of a loan based on the income of the borrower. This would cause well-justified complaints about the fairness of tougher requirements because it would inevitably hurt those colleges, like HBCU’s, whose students are most in need of financial support from the Federal government. But it needs to be done to protect the integrity of Federal student aid programs in general.
  1. Devise a better repayment plan for PPL’s. Such a plan should be based on parental income just as student repayment plans are tied to student income. The new plan should also feature an abatement of principal after a fixed number of years.
  1. Families should be encouraged to pay closer attention to the return on investment of a college degree or even of college education itself. Grace Akers, author of Make College Pay, offers this apt summary of the current situation: “Why do we act as if a college education is infinitely valuable? No one ever finishes the conversation and says that the people who were stopped [from borrowing] were about to take on an investment that might not have a return and might put them in unaffordable debt.”