How Parent PLUS Loans Work
If a student doesn’t qualify for enough in federal student loans, the good news is that parent PLUS loans are an option to help students continue with their education. A dependent student’s biological or adoptive parent (and sometimes their stepparent) can apply to receive a parent PLUS loan to make up the difference between the cost of attendance and any other financial assistance the student receives. In order to qualify for a parent PLUS loan:
- The dependent student must meet the eligibility requirements for federal student aid
- The parent borrower must not have an adverse credit history (unless he or she meets other student loan requirements).
Parent PLUS borrowers can request a deferment – which allows them to not make student loan payments while the student is enrolled at least half-time and for an additional six months after they leave, graduate, or drop below half-time enrollment. If the borrower doesn’t make that request, payments will be due starting after the student loan is fully disbursed. Similar to other loan programs, if it turns out a student won’t need the full amount and the parent borrower notifies the school before the loan is disbursed, all or part of the parent PLUS loan can be canceled.
There are a few things for students and parent borrowers to be aware of. There is a loan fee deducted from each loan disbursement for parent PLUS loans. Interest continues to accrue for any period during which payments are not required (i.e., deferment). The parent borrower can choose to pay the accrued interest or allow it to be added to their loan principal balance (called capitalization) when the first payment becomes due. Lastly, parent PLUS loans can’t be transferred to the student, meaning that the parent borrower is legally responsible for repaying the loan.
Parent PLUS Repayment Options
Borrowers of parent PLUS loans can choose from three different repayment plans: standard repayment plan (fixed payments are made for up to 10 years); graduated repayment plan (payments are made for up to 10 years with lower payments that increase every two years); and extended repayment plan (payments are made over 25 years). They can also consolidate their loans into a Direct Consolidation Loan in order to qualify for the Income-Contingent Plan. These flexible options allow for a variety of scenarios based on changes to the borrower’s income and situation. Plenty of great information on parent PLUS loans can be found for students and their families on the U.S. Department of Education’s Federal Student Aid site.
Why Refinancing a Parent PLUS Loan May Make Sense
Let’s say Jessie has graduated and is working her first job. Jessie offers to take over her mom’s parent PLUS loan payments so that her mom can save more for her retirement, help pay for Jessie’s younger brother’s college, take a much-needed cruise, or what have you. Good for Jessie (and kudos to her mom for raising her right)! At U-fi From Nelnet, we appreciate good people like both of them. But guess what? The responsible thing Jessie’s doing is building her mom’s credit rather than her own.
If you’re a new graduate or young professional with a job and the ability to make your parent’s PLUS loan payments, you could unofficially do it by giving them money, but that’s not going to build your credit as the loan is not in your name. In order to use your payment history to continue to build your credit, consider refinancing your parent’s PLUS loan into a loan of your own.
Prime Time for Refinancing Parent PLUS Loans
With today’s historically low interest rates, if you refinance your parent’s PLUS loan in a student loan refinance loan with some of your own student loans, you may be able to get a lower interest rate than your parent has. This would help you build your credit (in your name), and you could possibly save hundreds, if not thousands, in interest over the life of the loan.
Don’t qualify without a cosigner? Have your parent cosign on a student loan refinance for you. U-fi From Nelnet will remove cosigners from qualifying loans after 24 months of on-time payments. You share responsibility for your parent’s debt and then assume it once they’re removed from the loan. In the meantime, you build your credit. You could pay off your debt sooner, boost your credit score, and build your credit history – and be the favorite child in your family all at once.
Here at U-fi From Nelnet, we say, “Go ahead. Be a hero!” For your parent who cared enough to take out loans for your education – and as an advocate taking control of creating your own positive financial future. It doesn’t take a lot to do it. Just reach out, learn more about refinancing parent PLUS loans, and apply. You’ll find out your rate in two minutes or less.
We’re here for you, and we’re behind you, all the way! Count on U-fi From Nelnet to provide resources to help you be a smart financial consumer. Explore smart student loan refinance options and get started today.