If your financial aid package left more financial burden on your parents than you would like, it's not time to panic. The U.S. Department of Education offers a loan program designed specifically to help bridge any gaps in your college expenses. Here's what you need to know about using Parent PLUS loans to finance your undergraduate education.
Parent Loans for Undergraduate Students (PLUS) allow parents to borrow money for any portion of their child's tuition that isn't covered by the school's financial aid package. Technically, there's no limit on the amount you can borrow but your school determines the exact number based on your financial aid package. Most universities also allow you to apply for PLUS loans online, making it an easy process.
Who Takes Out the Loan
Unlike student loans, the PLUS loan is actually attached to your parents' credit. Before being approved for a loan, the DOE will perform a credit check to ensure there are no federal loan defaults in the family or any other financial red flags. As a student, you can make payments on behalf of your parents, but if you stop making payments, loan repayment is ultimately your parent's responsibility.
How it Compares to Other Loans
The interest rate for a Parent PLUS loan in 2015/2016 will be 6.84%, down from the previous year's rate of 7.21%. There is also a 4% fee deducted from each disbursement. Repayment of the loan starts after 60 days, though you can defer that until six months after graduation. Just keep in mind that interest accrues while you're in school and gets added to the principal loan amount after you graduate or drop below full-time enrollment.
Refinancing PLUS Loans
As a federal loan, you have the option of consolidating your loans to make one easy payment. However, since this is your parents' loan, you cannot consolidate them with any of your own federal student loans like a Stafford or Perkins. Parents can refinance PLUS loans, though. While they'll lose some of the federal perks like the ability to defer payment, this can be an attractive option, especially since parents are likely to have higher credit scores and may be eligible for better interest rates.
Visit Credible to find the best rates for refinancing your Parent PLUS Loan.