Parent PLUS Loans: Repayment, Consolidation, and Refinancing Options
It’s no secret. The cost of attending college in America can be expensive. Even after a student has received grants, scholarships, and federal loans, there still may be a financial gap. That’s where Parent PLUS Loans come in. The current federal PLUS Loan program allows parents of undergraduate students to borrow up to the total cost of attendance for the student’s education, minus any financial aid they receive.
These generous borrowing programs allow many students to complete their education, however, the debt of these loans can overwhelm parents when it comes time for repayment.
Parent PLUS Loan Repayment Overview
A Parent PLUS loan enters repayment within 60 days after it is fully disbursed. There are deferment options parents can request, but deferment may not provide the relief borrowers are looking for. Luckily, there are options for those who want to explore Parent PLUS Loan consolidation or refinancing.
Parent PLUS Loan Consolidation
Parent PLUS Loans are issued by the Federal Direct Loan Program, which has its own Direct Consolidation Loan program. This program comes with certain benefits that private loan consolidation does not have. But there are pros and cons to each, depending on what you want to achieve with student loan consolidation. First, let’s look at what the Direct Consolidation Loan program offers.
A Direct Consolidation Loan combines all existing loans to create a single new loan with a fixed interest rate equal to the weighted average of all the loans, rounded up to the nearest 1/8 of one percent. This means you won’t be lowering your overall interest rate. However, receiving a Direct Consolidation Loan has the following benefits:
- May reset your eligibility for deferment or forbearance, meaning you may be able to postpone making payments on the new Direct Consolidation Loan (even if you exhausted your deferment or forbearance benefits before consolidating the loans).
- Provides Parent PLUS Loan borrowers access to the income contingent student loan repayment plan. Those enrolled in this plan may also be eligible for Public Service Loan Forgiveness.
- Based on your total outstanding student loan debt, you may be able to extend your repayment term (up to as many as 30 years). This can lower your monthly payment, however, it may lead to an increase in the total amount of interest you pay if you don’t pay your loan off early.
- If you have more than one servicer, combining your federal loans into one loan will make it easier for you to manage your loan repayment.
Private Student Loan Consolidation for Parents
Private student loan consolidation offers a single new loan with an interest rate determined by the lender based on the borrower’s credit history. PLUS or private parent loan borrowers who have strong credit can benefit from a private consolidation loan because:
- It may lower the total monthly payment amount, since you won’t have to meet minimum payments on multiple loans.
- It consolidates multiple loans into one payment, giving the borrower fewer bills to track each month.
- The overall interest rate is likely to drop, perhaps significantly, through private student loan consolidation, because private lenders tend to offer competitive interest rates.
Consolidating federal loans into a private consolidation loan means your lender will no longer be the U.S. Department of Education. You’ll no longer be eligible for their generous student loan deferment or forbearance programs, and you won’t have access to the income-contingent repayment plan or the public service loan forgiveness program. Some private lenders offer their own programs to assist borrowers in times of financial hardship (for example, some private lenders offer short-term forbearance during times of unemployment, but the time frames are typically far shorter than what the government offers).
Q&A: Consolidating or Refinancing Parent Loans
Can my child take over my Parent PLUS Loans through student loan refinancing?
A 2017 report from the Consumer Financial Protection Bureau outlines alarming new trends about older borrowers of student loans: not only has the number of borrowers aged 60 and above increased fourfold in the decade between 2005-2015, but the majority of this debt is on behalf of borrowers’ children and grandchildren – and according to Forbes, it’s hurting their chances of financial security in retirement.
The Federal Student Aid programs do not allow parent PLUS borrowers to transfer loans directly to their child. However, there are several private lenders that offer loans directly to adult children who have obtained a bachelor’s degree and who qualify based on their employment, debt-to-income ratio, and other factors. If the adult child qualifies to refinance their parents’ PLUS Loans, the parents are relieved of all responsibility on the loans – and as the new borrower, the adult child can build a strong credit history by staying on top of loan payments. Also, the interest rate on the new consolidation loan may be lower than the previous PLUS loan interest rates.
Adult children whose parents are struggling under the burden of PLUS loans may wish to pursue this private student loan refinancing option so their parents can free up funds for retirement savings, keeping in mind it will result in the loss of federal loan benefits.
Is the process the same for consolidating Parent PLUS Loans as it is for consolidating Direct Student Loans?
Yes; if you choose to stay within the federal loan program, whether you’re consolidating Parent PLUS Loans or Direct Student Loans, the result is a new Federal Direct Consolidation Loan. The U.S. Department of Education disburses Direct Consolidation Loans through college financial aid offices.
Will consolidating my Parent PLUS Loans with the Direct Consolidation Program affect my credit?
The U.S. Department of Education does not require a credit check to consolidate your federal student loans or Parent PLUS Loans through the Direct Consolidation Program. Read more about eligibility requirements for a Direct Consolidation Loan.
If you choose a private lender to refinance and consolidate your Parent PLUS Loans, you will need to meet that lender’s credit eligibility criteria.
What are the benefits of consolidating my Parent PLUS Loans with a private lender?
You can refinance your Parent PLUS Loans when you consolidate with a private lender, so you will likely receive an interest rate lower than you would with a Direct Consolidation Loan or with your loans’ current interest rate(s). You can also expect to have a lower overall monthly loan payment.
If you’re a Parent PLUS Loan borrower, some lenders will refinance your Parent PLUS Loans into your adult child’s name if they have completed their bachelor’s degree and meet eligibility requirements. That means the debt will no longer be the burden of the parents.
Additionally, private lenders may allow you to combine federal Parent PLUS loans and private parent student loans (as well as the parent’s own student loans) in a consolidation.
If I consolidate my Parent PLUS Loans, will I still be responsible for paying them, or will my child?
If you consolidate your Parent PLUS Loans through the federal Direct Consolidation Loan program, the loans will remain in your name. This program does not allow Parent PLUS Loans to be transferred to another borrower.
It is possible for your Parent PLUS Loans to be assumed by your adult child through a private loan consolidation; according to Forbes, this is a viable option for parent borrowers who need relief from the burden of Parent PLUS Loan repayment. Some private lenders will refinance and consolidate your Parent PLUS Loans, creating a new loan in the name of your adult child, provided he or she meets the lender’s credit eligibility requirements (which often include completion of a bachelor’s degree and steady employment).
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