A Parent PLUS loan is a type of federal student loan. What sets it apart from other federal student loans is that students themselves cannot apply for this loan. Parent PLUS loans are only available to parents of students enrolled at least half-time in an eligible program. These additional funds can help bridge the gap when a student’s financial aid package falls short of the total cost of attendance.

Here’s what you should know about Parent PLUS loan debt and how refinancing can help.

The Benefits of Parent PLUS Loans

• Parent PLUS loans are easy to get with no credit score or income requirements.
• There’s no limit as to how much a parent can borrow. Parents can borrow up to the student’s cost of attendance, less the total financial aid the student has received.
• These are fixed-rate loans and are not impacted by market fluctuations.
• Parents can choose an income-based repayment term that sets the repayments to their monthly income.
• Parent PLUS loan borrowers have access to deferment and forbearance options at times of financial hardship.
• It’s a good alternative for parents with a bad credit history or low monthly income.

The Drawbacks of Parent PLUS Loans

• Parent PLUS loans have the highest interest rates as compared to other federal student loans.
• Borrowers pay an origination fee, which increases the cost of the loan.
• This is an unsubsidized loan, which means interest starts accruing from the day the funds are disbursed.
• Repayment starts the day the funds are fully paid out. There is no grace period, unlike other federal student loans.
• Borrowers looking to make the payments more manageable have fewer options to choose from.

With the higher interest rates, the addition of origination fees, and interest accrual from day one, Parent PLUS loans can be a very expensive option. If your credit score is high and you’re earning a high income, you may qualify for a private student loan at a much lower rate. Besides, private student loans don’t have origination fees, adding to your savings.

How Refinancing Can Help Better Manage Parent PLUS Loan Debt

Refinancing is the best way to exchange your high-interest Parent PLUS loan for a lower-interest student loan. However, you will need to have good credit and a high income to benefit from the lower rate.

If you’re looking to get rid of your debt, you can also refinance in your child’s name. Your child would then take on responsibility for repaying the loan. In this case, your child will have to meet the lender’s refinance requirements. Lenders will only approve the loan transfer if your child has a high credit score and is earning enough income to afford the monthly payments.

Refinancing in your child’s name benefits both parties. You benefit from becoming debt-free so you can focus on your own financial goals or retirement plans. Your child benefits from getting a head start on building their credit score by making timely payments on the refinanced loan.