PLUS loans are federal student loans that can be used by graduate students, professional degree students, or parents of dependent undergraduate students to help pay education expenses. Direct PLUS loans are made by the U.S. Department of Education through schools that participate in the Direct Loan program.
With Direct PLUS loans, the U.S. Department of Education is the lender. Borrowers must not have an adverse credit history with delinquencies, bankruptcies, or tax liens, and the maximum loan amount that can be received is the cost of the student’s attendance (calculated by the school) minus any other financial aid received. In order to receive a Direct PLUS loan, you must complete the Free Application for Federal Student Aid (FAFSA).
This might sound like a mouthful, but the criteria for obtaining a PLUS loan is actually pretty flexible, which can be to a family’s determinate as there is no underwriting done to determine if the family can actually afford the loan. This means, it’s possible for parents to borrow $200,000 while only earning $50,000 as a household. This could be in addition to a mortgage and other existing debts. Everyone receives the same interest rate on PLUS loans regardless of their creditworthiness. The current interest rate on PLUS loans first disbursed on or after July 1, 2015 and before July 1, 2016 is 6.84%. This is a fixed interest rate for the life of the loan.
Recently, there has been a rise in companies willing to refinance PLUS loans to help you save money with a lower interest rate. But you do have to meet stricter underwriting criteria. One lender such lender is Digital Federal Credit Union (DCU).
An Overview of DCU PLUS Loan Refinancing
DCU PLUS Loan Refinancing can be used to refinance or consolidate your existing PLUS loan(s) between $5,000 and $100,000. DCU’s PLUS Loan Refinancing rates are as low as 5.99% APR, which can help you pay off your loans faster and save money on interest if you refinance. Consolidation is also a good way to reduce your monthly student loan payments into one convenient payment rather than having to make multiple payments each month.
With DCU, you can quality for a lower rate with a .25% interest rate reduction if you enroll for automatic electronic payments. They also offer a graduated repayment option that will help lower monthly payments for the first two years of your repayment term. Finally, DCU charges no pre-payment fee. This means you are able to pay off your loan at any time with no penalty.
Payment terms offered by DCU for PLUS loan refinancing and consolidation include a 5, 10, or 15 year term.
Application and Qualification Process
In order to refinance or consolidate PLUS loans with DCU, you have to meet income, employment history, and credit requirements, plus you must be in active repayment on your existing PLUS loans from an approved school. Exact qualifications for income, employment history, and credit requirements are not shared on DCU’s website, but you can easily apply online to see if you qualify.
Fees and Gotchas
Although DCU charges no pre-payment fee or origination fee for PLUS loan refinancing, the interest rate you receive may be higher than 5.99% depending on the repayment term you select. The current rates are:
- 5-Year Repayment Term – 5.99% APR
Thus you should calculate your potential savings before considering refinancing your PLUS loans.
Pros and Cons
Obviously the biggest pro to refinancing your PLUS student loans with DCU, or any other private lender, is the opportunity to save on interest and potentially pay your balance off sooner.
But it’s also important to remember that no matter who you refinance your federal student loans with, you may be giving up some benefits and protections that are only available to federal loans. For example, an Income-Contingent Repayment (ICR) Plan allows borrowers with federal student loans to make monthly payments capped at a portion of their discretionary income. This is actually available to Parent PLUS loans once the loan has been consolidated. This is an option that is not available to you if you refinance your federal student loans with a private lender.
PLUS Refinance Alternatives
How does DCU compare to other available options for refinancing PLUS student loans?
Laurel Road Bank(formerly known as DRB) offers PLUS loan refinancing as well. Laurel Road Bank’s interest terms are more attractive than DCU’s with fixed interest rates between 3.50% and 7.02% APR. This is quite a bit lower than DCU’s fixed rate on longer-term loans. Additionally Laurel Road Bank will refinance 100% of your PLUS loans with no cap on the amount (if you qualify). Laurel Road Bank also offers some benefits that DCU doesn’t if you face financial hardship.
Another option is SoFi with fixed interest rates ranging from 3.90% to 7.61% APR (if you sign up for auto-pay). SoFi also offers benefits like unemployment insurance if you get laid off. Like DCU, there are no application, origination, or prepayment fees.
Who Will Benefit Most from a DCU PLUS Loan Refinance?
Graduate and professional students, or parents of undergraduate students can benefit from a DCU PLUS loan refinance, especially if they opt for a 5-year term with automatic payments in order to get the lowest interest rate.
Keep in mind that opting for a longer loan term with DCU will result in a higher interest rate, which could negate any interest savings you hoped to achieve by refinancing your PLUS student loans.
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