Plenty of parents are taking out Parent PLUS Loans to help their children get a good education in an era of steeply-rising tuition costs. There are clear benefits to Parent PLUS loans, as well as challenges to consider, and this post will help guide you through these considerations.
PLUS loans are not subsidized, which means they accrue interest while your child is in school. Borrowers can request an amount that equals but does not exceed the full cost of college attendance minus any other financial aid that’s been obtained. Now, here’s more information about this federal student loan borrowing option.
Confusion Over the Name
Parents might find themselves asking questions like these:
• What are Direct Loans?
• What is a Parent PLUS loan?
• What is a Direct Parent Plus loan?
• What is a Federal Direct Parent Plus loan?
To avoid confusion, note that there are federally-funded Direct Loans (Stafford Loans) that are taken out by the students themselves. Then there are federally-funded Parent PLUS loans taken out by parents.
Because Parent PLUS loans are federally funded, to receive them, students and their parents must first fill out the Free Application for Federal Student Aid (FAFSA®). Now, here are pros and cons of Parent PLUS Loans.
Pros of Parent PLUS Loans
If you qualify, you can take out sizable Parent PLUS Loans, as long as the loan balance does not exceed the student’s total cost of attendance—minus any financial aid the student has already qualified for.
Another pro for many people is how interest rates are fixed throughout the life of the student loan. This makes it easier to budget for the monthly payments. Even if interest rates go up nationally, you’re still locked in with the rate you received when you originally signed your borrower’s note.
Repayment plans are flexible, and they vary by servicer. There are a myriad of options, including a standard repayment plan with fixed monthly payments for 10 years, and an extended repayment plans with fixed or graduated payments over a term of 25 years.
You can make your strategic choice among whichever options you qualify for. What you choose should be based on your goal, which could be to keep your payments low or to pay off the loan more quickly, with the latter option typically allowing you to pay back less in interest, overall, during the life of the loan.
Cons of Parent PLUS Loans
While this isn’t necessarily a con, you’ll need to make sure you meet Parent PLUS Loan eligibility standards—and that includes passing a credit check. Indicators of poor credit include defaults of debt, foreclosures, repossessions, debts discharged through bankruptcy, tax liens, wage garnishments, or previous write-offs of federal student debt.
Sometimes, you can still get a Parent PLUS loan if you have a qualified endorser, which is like a cosigner. You also need to be a United States citizen or national. Something else to be aware of is that loans with a disbursement date on or after October 1, 2017, have different loan fees . Plus, you’ll need to start paying back the loan as soon as the loan amount has been paid out.
Creating a Strategy to Pay for College
Sometimes, scholarships can significantly reduce the amount of money that needs to be paid out of pocket for college, and personal savings and wages can also help. But, it isn’t unusual for students to also need to take out loans. And any time a student needs to borrow money for education, a strategic plan should be created.
This may include a mix of subsidized and unsubsidized federal student loans and may also consist of some private student loans. It can also include Parent PLUS loans to cover the gap between what amount is owed and how much money is available through other sources. If you decide to apply for this type of loan, here’s an overview of what to do.
How to Apply for a Parent PLUS Loan
First, you need to fill out the FAFSA form with the student, if you haven’t already done so. Then, you log in at StudentLoans.gov , choose the Parent Borrowers tab, and the “Apply for a PLUS Loan” link. Among other information, you’ll need to provide social security numbers, personal references, and driver’s license information.
Planning Ahead: Parent PLUS Loan Refinancing
The goal of Parent PLUS Loan refinancing is to get a lower interest rate than what’s available through the federal government. And student loan refinancing can allow you to transfer the debt into your child’s name.
To help you make this decision, here are a few benefits of refinancing, which potentially include:
• lowering your interest rate, which gives you the option to:
◦ reduce your monthly payments and free up cash flow OR
◦ pay the loan off more quickly, which gets you out of debt faster and may allow you to pay less interest over the life of the loan
• transferring the debt to your child’s name once he or she can make the payments, which:
◦ Repays the government loan
◦ May help your child to build credit
• unemployment protection offered by some lenders, including SoFi, if you have a recent qualifying job loss
Note that Parent PLUS loans come with certain kinds of borrower protections you would lose if you refinanced. Income-based repayment, for example, is a federal loan benefit that you can’t take advantage of after refinancing.
Parent Plus loan eligibility for refinancing depends upon multiple factors, such as:
• your credit history
• income and steadiness of income
• educational background
If you choose this option and reach a point where you want to refinance the loan into your child’s name, once he or she is capable of paying off the debt, your child will typically need good credit and a secure income to qualify for refinancing. Your child would then apply to refinance the loan into his or her name,and you have the option of cosigning for this loan.
To help you decide if it makes sense to refinance your Parent PLUS loans, here are four reasons when it could make sense to refinance:
• Your loans have higher interest rates that what may be available if you refinance.
• You have a large loan balance.
• You’ve done a good job taking care of your finances.
• Your income is predictable.
Refinancing Parent PLUS Student Loans with SoFi
SoFi makes it fast and easy for you to refinance your Parent PLUS loans (and makes it fast and easy for your children to apply to refinance their student loans, too!).
You can find your rate in just two minutes. SoFi is one of the few lenders that allows you to combine federal and private student loans, consolidating them and refinancing them into one lower interest loan.
Keep in mind that refinancing your loans with a private lender means forfeiting federal loan benefits such as forbearance, deferment, and income-based repayment plans.
There are no application fees, no origination fees, no hidden fees, and no prepayment penalties. You may even qualify for discounts on other SoFi loans, just by being a member.
And if you need another reason, how about this one? Peace of mind.
If you qualify, you can choose between fixed or variable rate loans, with multiple term options. This allows you to optimize your monthly payments, lifetime cost, or payoff speed, selecting the plan that fits your unique needs.
Student loans can get complicated—SoFi is here to help. From helping you finance your education to helping you get out of your college debt, we’ve got you covered.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the
FTC’s website on credit.
SoFi private student loans are subject to program terms and restrictions and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. View payment examples. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.