All parents seek to help their child in one or another way. But sometimes it is not easy or affordable. Especially while borrowing the parent loans for their student, who is going to an undergraduate program. Is there a way to refinance parent PLUS loans?
To ease the burden of repaying once the child is graduated, parent loans can be refinanced. There are generally two methods to refinance PLUS loan.
- The parents can refinance parent PLUS loans on their name.
- A child can refinance in their name and take the responsibility of repayment.
Let’s find out the ways to refinance the parent’s loan.
- Refinancing the parent PLUS loan on their name
Generally, the PLUS loan interests are set by the government and they are quite higher than the other student federal loans. When you refinance parents PLUS loans, it will ensure that you pay it with less interest.
Those who take the PLUS loan tend to pay 6.31% interest. Also, it is higher than the 3.76% on direct loan, in case of undergraduates.
Refinancing the PLUS loan is based on the credit score. So, generally, parents who have the large credit history and employment qualify for the lower rate interest.
- Child refinancing a parent PLUS loan on his/her name
The parents are not allowed to transfer the PLUS loan into their children’s name. Many private lenders in the market now allow the students to refinance their parent’s loan. When a child tends to ask for the new refinanced loan, the lenders pay off all the previous debt and the new loan starts. A child can ask to include the PLUS loan in order to pay for his side.
By transferring the PLUS loan on the children shoulder, parents get free from the obligations of debt. Moreover, a child gets the opportunity to develop his/her own career and credit history by making the payment on due dates.
To refinance these loans, you need to have at least credit score of around 600s or more. In addition, it also asks for the regular employment history, and the income of at least 24000 USD. Graduate students need to meet these criteria to transfer the PLUS loan.
Also, including the parents as a co-signer can help to reduce the interest rate on refinanced loans.
- However the PLUS loan doesn’t have all the benefits of the federal loan, but refinancing can render you to lose of some protections. They are student loan forgiveness, flexible plans, and payment postponement.
- In federal programs, the parents can get relief from loan payment for around 3 years, in case they lose their employment or they had to go through any financial problems. In case of refinancing from the lenders, they offer the hardship deferment only for the shorter period of time.
- Generally, a child can feel obliged to repay the loan which can trigger the feeling of guilt and resentment. Also, the transfer is permanent which cannot be reversed in future.
- Prior to refinance parent PLUS loans, the loan should be transferred on the child’s name. Also, the parent and child should be in total agreement of refinancing the loan.
- Also, the federal benefits are lost while transferring the PLUS loan to refinance, because the nature of loan gets changed from federal to private.