There are two types of PLUS Loans: PLUS Loans for Parents and PLUS Loans for Graduate and Professional Degree Students. Each of the loans can be consolidated. However, parents will need to go through the student loan consolidation process for their PLUS loans. They are not able to transfer the title of this loan to their child. Graduate and professional students will be responsible for consolidating loans they borrowed from the government.
Factors to Consider
The federal government developed the Public Service Loan Forgiveness Program to help foster careers in public service. Federal student loans, including PLUS Loans, are eligible for forgiveness. If you are a parent borrower, you are the one who must meet the following requirements, not your child:
- Work full time in public service, AmeriCorps, or Peace Corps. The government defines public service as work done in local, state, and government agencies, 501C non-profit organizations, tribal government organizations, or a private business. The private business must provide public services like law enforcement, emergency management, public safety, or education.
- Make 120 loan payments within 15 days of the due date.
Not everyone who applies for loan forgiveness will be eligible. Those with lower incomes and higher debt ratios are considered first. Speak with your lender to make sure that you will not lose this benefit if you end up consolidating your PLUS loans.
The Service Members Civil Relief Act caps the interest rate military members pay on their student loans. This act applies to both parent and student borrowers. The capped interest rate stays in place as long as you are in the military. If your loan was disbursed after October 1, 2008, interest does not accrue on the PLUS loan while you are engaged in wartime activities. Before you consolidate, tell the consolidation company about this special provision you are receiving. Make sure that you will not lose this benefit by consolidating.
Consolidating Regulations, Requirements, and Benefits
Typically, you cannot begin consolidating your student loans until after you graduate from college. However, there is an exception. Parents can consolidate their PLUS loans while their child is still attending school. Graduate and professional PLUS student borrowers will have to follow the standard rules: attend school less than part time, withdraw, or graduate.
Consolidating your PLUS Loans gives you the chance to lower your monthly payments. You lower your monthly payments by extending the life of your PLUS Loan. In many cases, you can extend the life of your loan up to 25 or even 30 years. The government allows consolidation companies to decide how long they will extend your loan. Often, the extension is determined by how much you owe and your current income situation. Some lenders will require minimum balances between $10,000 and $20,000.
Another benefit of consolidating your federal loans is having one fixed interest rate. If you took out the loan after July 1, 2006, your PLUS loan had a fixed interest rate. Prior to July 1, 2006, PLUS Loans had variable interest rates. Each of these rates was set by the federal government. The government also determines the maximum interest rate a consolidation lender can charge. Lenders typically use a blended rate to decide your new fixed interest. They are able to add an additional 0.125% to the blended rate, but cannot assign a rate higher than 8.25%. Carefully consider the financial implications of this new rate. Depending on when you took out your loan, your interest rate may be well below the 8.25%.
Consolidation lenders are prohibited from charging you an application fee, so there is no up-front cost to consolidate your PLUS loans. This does not mean that lenders cannot charge you other types of processing or service fees; they may, but the good news is that there are plenty of companies who will consolidate federal loans. Competition has driven down and nearly eliminated many of these extra fees.
Lenders cannot charge you prepayment penalties on your PLUS Loans. This means that you are able to pay your loan off early without incurring any interest penalties. However, you will need to specifically tell the lender that you are prepaying. Otherwise, they are able to put your money toward the next monthly installment.