Parent PLUS loans: who qualifies and how to refinance them

These federal loans can help pay for your child’s college education. (iStock)

Are you looking for a way to pay your child’s tuition without taking out private student loans? A Parent PLUS loan could be a great option.

In summary, a Parental Undergraduate Student Loan (PLUS) is a federal loan given to the parents of a student. In turn, the parents are the borrowers and they are responsible for paying off the debt, not the student.

Parents applying for PLUS loans can borrow money to cover tuition costs, up to the full cost of tuition, which is not already covered by a student’s financial aid.

Parent PLUS loans have a fixed interest rate and borrowers must pay loan origination fees, both of which depend on when the loan is issued. (PLUS loans disbursed for the 2019-2020 academic year have an interest rate of 7.08% and a origination fee of 4.236%.) Generally, Parent PLUS loans have interest rates and fees higher than federal subsidized loans and private student loans.

BEST STUDENT LOANS FOR PARENTS: MORE VS. PRIVATE

Legal guardians are not eligible for Parent PLUS loans – the borrower must be the student’s birth parent or step-parent. Additionally, parents applying for PLUS loans cannot have an adverse credit history, defined as having “one or more debts with a cumulative total balance greater than $ 2,085 and that are 90 days or more past due. as of the date of the credit report, or that have been collected or written off (written off) within the two years prior to the date of the credit report according to US Department of Education. “

The exception? Parents who have an adverse credit history may still be eligible for a PLUS loan by obtaining an endorser (similar to a co-signer) who has good credit or by documenting extenuating circumstances, such as job loss, related to their adverse credit history.

WHAT ARE LOAN-FREE COLLEGES

Repayment on Parent PLUS loans typically begins 60 days after the funds have been fully disbursed, for a term of up to 10 years. However, parents can request to defer payments while their child is in school as long as the student is enrolled at least part-time. Parents can also request a grace period of six months after graduation.

Since Parent PLUS loans are unsubsidized loans, interest starts accruing as soon as funds are disbursed and continues to accrue even if payments are deferred.

How to apply for a Parent PLUS loan

Parents must submit the Free Application for Federal Student Aid (FAFSA) before you can apply for a Parent PLUS loan. Then parents can submit a PLUS loan application to StudentAid.gov. If their application is approved, borrowers must sign a promissory note which constitutes a legally binding agreement for them to repay the loan.

How to refinance a Parent PLUS loan

Borrowers with a Parent PLUS loan can refinance for a lower interest rate and a more affordable monthly payment, or to transfer the loan to their child after their son or daughter graduates. To be eligible for refinancing, borrowers must have a strong credit score (typically 650 or higher).

The savings can be substantial. For example, say a borrower has a $ 40,000 Parent PLUS loan at 6% interest rate and can refinance a loan at 3% interest rate. By doing this, the borrower would reduce their monthly loan payments by approximately $ 58 and save $ 6,941 in interest over a 10-year repayment period.

The Downside to Refinancing Parent PLUS Loans? Since the US Department of Education does not offer refinancing, borrowers must refinance Parent PLUS loans through a private lender and, unlike federal loans, private student loans cannot qualify for loan forgiveness or income based payment which is something to consider.

Parent PLUS loan borrowers looking to refinance should shop around for the best deal on their new loan.