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Do Parent PLUS Loans Affect Your Credit Score?

Do Parent PLUS Loans Affect Your Credit Score?
Rebecca Safier
Rebecca SafierUpdated January 11, 2023
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Parent PLUS loans can affect your credit score, but the impact isn’t necessarily negative. If you pay back your Parent PLUS loan on time, you could see your credit score increase. However, if you miss payments, your credit score might drop. If you’ve been asking yourself, do Parent PLUS loans affect your credit, we’ve got answers. Learning how these student loans work, and the possible impact on your credit, could help you make the right borrowing decision. Here’s what you need to know. 

What Are Parent PLUS Loans?

Parent PLUS loans are federal student loans issued by the U.S. Department of Education to eligible parents who want to help their child pay for college. To take out a Parent PLUS loan, you must be the parent or legal guardian of a dependent undergraduate student enrolled at least half-time in a qualifying college, university, or other school. Before you can apply, however, your child must fill out the Free Application for Federal Student Aid (FAFSA)Once approved for a Parent PLUS loan, you can borrow as much as you need to cover your child’s cost of attendance, minus any financial aid they’ve already received. Although you’re borrowing the money on behalf of your child, you are the one responsible for paying back the loan. 

How Parent PLUS Loans Work

When you borrow through a Parent PLUS loan, the funds go directly to the school’s financial aid office, which applies it to tuition, room and board, and other school expenses. If there’s any money left over, the school will send that amount directly to you or your child, depending on what you request, to pay other school-related expenses. Unlike federal student loans made to students, Parent PLUS loans don’t automatically go into deferment. Instead, you’re expected to start paying the loan back right away. However, you can request a deferment of payments until six months after your child has left school. The interest will continue to accrue during this time. Parent PLUS loans come with fixed interest rates and an origination fee for processing the loan, both of which are higher than the rates and fees for Direct subsidized and unsubsidized student loans made to students. The origination fee is subtracted from the loan amount, so make sure to account for it when determining how much you need to borrow. 

Do Parent PLUS Loans Affect Your Credit?

Parent PLUS loans impact your credit in a few different ways. First, the application process involves a hard credit inquiry, which can temporarily lower your credit score by a few points. The impact typically goes away within a few months.Second, taking out a parent PLUS loan means adding a new account to your credit report. A new account may bring down your score as it decreases the overall age of your credit accounts. On the other hand, adding a student loan might boost your credit mix, which is the different types of credit you have, possibly helping your score. Most important, however, are the payments on your parent PLUS loan. Payment history makes up 35% of a FICO® score. On-time payments can help your score, while late or missed payments can hurt it. Finally, you should be aware that taking out a loan increases your debt-to-income ratio (DTI), which is a comparison of your monthly debts to your gross monthly income. Although your debt-to-income ratio doesn’t directly impact your credit score, it is one factor lenders typically consider when evaluating you for a loan. So if you’re planning to take out a mortgage or loan for a new car soon, you may want to be careful about how much debt you take on. 

Credit Score Needed for Parent PLUS Loans

In terms of Parent PLUS loan credit requirements, there is no specific minimum credit score for a Parent PLUS loan. However, you cannot have an adverse credit history, which is defined as: 
  • Accounts that have a total balance of $2,085 or more and are 90 or more days delinquent or have been placed in collection or charged off during the past two years or 
  • A record of default, bankruptcy, repossession, foreclosure, charge-off of a federal student debt, wage garnishment, or a tax lien in the past five years 
If you do have adverse credit, there are two methods you may be able to use to get a Parent PLUS loan. For instance, you could try applying for the loan with an endorser, which is someone similar to a cosigner who agrees to repay the loan if you can’t. Alternatively, if you’ve been denied a Parent PLUS loan because of adverse credit, you could appeal the decision and explain the extenuating circumstances relating to the adverse credit. Whether you apply with an endorser or appeal the decision, if you are approved for a loan, you’ll be required to complete a credit counseling course. 

Payment Options for Parent PLUS Loans

While Parent PLUS loans don’t have access to the same range of repayment plans as loans to students do, you still have options for paying off student loans. Parent PLUS loans are eligible for: 
  • Standard repayment plan: Make fixed monthly payments over 10 years.
  • Graduated repayment plan: Make graduated payments over 10 years that start out smaller and increase every two years. 
  • Extended repayment plan: Make payments over 25 years that can be fixed or graduated. 
Alternatively, you can get your Parent PLUS loan on the Income-Contingent Repayment plan if you fist consolidate it with a Direct Consolidation Loan You can apply for consolidation on the Federal Student Aid website. The ICR plan generally adjusts your monthly payment to 20% of your discretionary income and extends your loan term to 25 years. If you still have a balance at the end of your term, it will be forgiven. ICR is also eligible for Public Service Loan Forgiveness. 

Refinancing Your Parent PLUS Loans

If you’re looking to better manage your Parent PLUS loan, refinancing it may be an option to consider. As for how refinancing works, it involves replacing your Parent PLUS loan with a new loan from a private lender, such as a bank, credit union, or online lender. While refinancing does affect your credit score, the impact should generally be brief and temporary.Depending on your credit, you might qualify for a better interest rate with refinancing than you have now. Reducing your interest rate could lower your monthly payment and lead to less interest charges over time. You’ll also get the chance to choose new repayment terms that may better fit your situation. You could opt for a shorter term to get out of debt faster or a longer term so you have more breathing room in your budget as you pay back your loan. By making your loan easier to repay, refinancing also has the potential to help your credit if it means that you avoid missing payments or can pay down the loan faster. If your child has strong credit and income, they could even refinance the Parent PLUS loan in their own name, relieving you of responsibility for the debt. However, you need to be aware that refinancing parent PLUS loans with a private lender means that you’ll be sacrificing federal protections. Since you’ll be replacing the federal loan with a private loan, you’ll no longer have access to federal repayment plans or federal forgiveness programs. If you’re pursuing any of those programs now or to plan to in the future, it wouldn’t make sense to refinance your parent loan. 

Parent PLUS Loans and Your Credit Score: The Takeaway

Understanding how parent PLUS loans impact your credit score can help you make the best financial decisions for yourself and your child. Because parent loans have higher interest rates and fees than Direct subsidized and unsubsidized loans for students, it may make sense for your child to max out their eligibility for federal student aid before you borrow on their behalf. If you decide a Parent PLUS loan is the right move for you, be sure to make all your payments on time to protect your credit. Explore your options for repayment, including the ICR plan and parent loan refinancing, to find the best strategy for you. 

3 Student Loan Tips 

  1. Refinancing your student loan can lower your monthly payments and help you adjust your loan term. Compare student loan refinancing rates to find a loan that works for you.
  2. Paying extra each month on your student loan can reduce the interest you pay and so lower your total loan cost over time. (The law prohibits prepayment penalties on federal or private student loans.)
  3. Depending on their income, qualified borrowers can deduct the interest they pay for student loans, both federal or private, up to $2,500 per year. The deduction phases out for modified adjusted gross incomes of $70,000 to $85,000 for single individuals and $145,000 to $175,000 for people married and filing jointly.

Frequently Asked Questions

Do parent PLUS loans show up on your credit report?
Do parent PLUS loans have any downsides?
Photo credit: iStock/mixetto

About the Author

Rebecca Safier

Rebecca Safier

Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
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