Parents look at a child’s education as an investment in his or her future. Educational investments come with the requirement to pay tuition. Parents who do not possess the necessary liquid capital to pay for an education out-of-pocket look towards borrowing funds. Parent Loans for Undergraduate Students (PLUS loans) are extremely helpful to adults seeking to fund college costs for their progeny.
While appreciated, the approval for these loans does come with certain caveats. The biggest drawback would be the high rate of interest associated these particular loans. Paying back the loans as quickly as possible definitely would assist with lowering the overall costs.
Refinancing the Deal
No very specific rule exists that states the borrower is locked into paying the PLUS loan without exploring the option for refinancing. In fact, there are refinancing strategies available to make repayments a lot easier to handle. Overall, refinancing reduces the costs of an education by eliminating expensive Department of Education PLUS loans.
Refinancing may come in two forms. Parents, the original borrowers of the loan, could choose to refinance the debt. Parents are not the only ones who could do so. The children whom the loan is intended to benefit may also explore options to refinance. Either way, the original costly loan may end up eradicated and replaced with a more affordable one.
Refinancing this particular type of loan does need to be thought out carefully. When the loan is issued under the government’s banner, certain protections remain in place. Once the loan is refinanced, new terms are accepted with a new lender. Hence, all previous protections no longer exist since the original loan and its terms are wiped out.
Parents Choose to Refinance
PLUS loans are sometimes confused with standard federal student loans. They are not the same. One thing that leads federal PLUS loans to stand out negatively is the high rate of interest. Congress chooses the interest rates on these loans. Sometimes, the selected rates are in excess of 7%, an enormous figure.
Other options exist for those hoping to repay debt without being locked into unnecessarily high rates of interest. A home equity loan can very easily be procured an interest rate of far less than 7%. Other loan options do exist. Exploring those options surely would be a good move on the part of anyone who wants to make borrowing less costly.
Credit rating and collateral both figure into the process of acquiring a new loan. The better a credit score then the greater the chances are of acquiring competitive interest rates for loan refinancing. Someone with very poor credit may find it beneficial to stay with a PLUS loan. There would be no logical reason to refinance a loan at a higher interest rate.
Collateral could assist with procuring a loan. The aforementioned home equity loan would be one example of a secured loan appropriate to refinance a PLUS loan.
Child Refinances the Loan
The fact a child can refinance a PLUS loan is somewhat interesting since the original PLUS loan is in the parents’ names. Certain lenders may be willing to offer refinancing deals for children who wish to refinance a parent’s loan. Those who refinance their own student loans may be afforded a chance to add PLUS loans into the mix as a bundle.
The lending industry sees there is a decent customer base out there and is willing to devise unique loans to accommodate those customers. All this could be to the gain of the original borrowers of the high-interest loans.
Thinking Things Through
Once the loan is refinanced, then the borrower must accept the new terms. A new secured loan issued by a private institution won’t be affected by any student debt forgiveness arrangements. Anyone with a desire to refinance must keep this in mind.
The government may even offer payment delays for those in need of a deferment. Lower interest rates may come with a tradeoff. For this reason, serious thought must go into any decision to refinance a PLUS loan. Both parent and child should really think things through. Doing so is the only way to arrive at the best decision.