Refinancing with Earnest
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Most student loan articles focus on struggling college graduates who can’t repay their debt. But what about their parents? We hardly ever hear about the moms and dads who are stuck paying back parent PLUS loans for children who obtained undergraduate degrees.
Parent PLUS loan debt currently stands at about $89.9 billion, spread out among 3.6 million borrowers. Since the standard parent PLUS repayment term is 10 years, millions of parents could spend a decade (or more) attempting to repay what they’ve borrowed.
Repayment could even be extended to 25 years if the loans get consolidated, or if the federal student loan balance in question exceeds $30,000. Even worse, these types of loans have the highest interest rates among the various types of federal student debt. For the 2018-19 school year, the rate is 7.6%, compared with 5.05% for direct loans to undergrads.
So what can parents do to ease the strain on their finances? Here are four ways to get your parent PLUS debt under control this year.
1. Income-contingent parent PLUS loan repayment plan
Pros: Lowers monthly payments and offers parent PLUS loan forgiveness after 25 years.
Cons: Likely increases total interest charges. Requires paying a higher percentage of discretionary income than other income-driven repayment plans.
The federal government offers four types of income-driven repayment plans, but parent PLUS loans are only eligible for one: Income-Contingent Repayment (ICR).
ICR caps monthly student loan payments at 20% of the borrower’s discretionary income, which is the difference between your gross income and a minimum level based on the federal poverty guideline for your state and family size.
Parents generally have to pay a larger chunk of their discretionary income with this program, but these payments can still be less than they’d be on other repayment plans. This is helpful if you hope to free up extra cash flow each month.
One advantage of ICR is that you’ll be eligible for parent PLUS loan forgiveness after you make payments for 25 years. However, spreading out parent PLUS loan repayment over such a long period can cost you more in interest overall. Plus, you might be subject to additional taxes on the amount forgiven.
To qualify for ICR, your parent PLUS loan needs to be consolidated first by the Department of Education into a direct consolidation loan. This is the standard federal student loan consolidation option.
To apply for a direct consolidation loan, first contact your student loan servicer. There are nine federal loan servicers:
- FedLoan Servicing
- Granite State
- Great Lakes Educational Loan Services, Inc
- OSLA Servicing
Your loan servicer should be able to advise you on the best way to proceed. Note that the federal consolidation process typically takes between 30 and 90 days.
2. Parent PLUS loan consolidation and refinancing
Pros: Could decrease high interest rates on parent PLUS loans.
Cons: Requires borrowers to qualify based on credit and income. Borrowers could also lose some flexibility afforded by federal student loans.
Parent PLUS loan refinancing has the potential to work especially well for some borrowers. In general, parents of college students have more established credit histories than graduates in their 20s. If you’re a parent with a high credit score, then you have a better chance of approval for student loan refinancing.
Lenders that refinance parent PLUS loans like to see steady income and employment history as well, which will increase your odds of being approved. Want to get a sense of whether you might qualify to refinance? Take our refinancing eligibility quiz:
Private student loans don’t have all the same repayment options that federal student loans do. Most lenders offer terms between five and 20 years, as well as the choice between a variable and fixed interest rate. But you probably won’t be able to put your loans on an income-driven plan, and only a few private lenders offer forbearance if you run into financial hardship.
Plus, you can change federal student loan repayment plans at any time, but this isn’t the case with private student loans. Once you complete refinancing, your only other option to change your repayment terms would be to refinance again.
Before you decide to refinance, you’ll want to determine whether a lower monthly payment and the interest savings are worth giving up some of the federal protections and forgiveness programs.
Refinancing parent PLUS loans includes another option: refinancing your parent PLUS loans into your child’s name. By doing this, your child becomes responsible for their debt, and you no longer need to make payments. It can take the pressure off you, especially if you have been struggling with parent PLUS loan repayment.
3. Public Service Loan Forgiveness (PSLF)
Pros: Eligible for parent PLUS loan forgiveness after 10 years.
Cons: Limited to certain career fields.
Public Service Loan Forgiveness (PSLF) is a federal program available to certain public service employees, such as those in government and nonprofit fields. This program forgives all federal student loan debt after 120 qualifying payments (typically 10 years).
Many graduates on track to take advantage of Public Service Loan Forgiveness do so with income-driven repayment plans. Just keep in mind that most of these plans aren’t available for parent PLUS loans. Instead, you’ll likely need to consolidate your loan with the federal government and use Income-Contingent Repayment — if you use the standard 10-year repayment plan, then your loan balance would be zero after 120 payments, with nothing left to forgive.
Before you shoot for PSLF, make sure you definitely qualify. Unfortunately, many PSLF applicants who worked in public service for 10 years and expected to receive loan forgiveness had their applications rejected because they didn’t meet all requirements or didn’t file the right paperwork each year.
You should also make sure extending your loan terms with ICR is worth the extra amount you’d pay on interest. If you can make extra payments instead, you could get out of debt years ahead of schedule, which could be a better option for some borrowers.
Besides making sure your loans are on the right repayment plan, keep an eye out for any administrative changes to PSLF. The program has come under fire from critics recently, with some Republican lawmakers recommending eliminating it altogether. While the program is functioning right now, it’s not guaranteed to last forever.
4. Standard Parent PLUS Loan repayment
Pros: Keeps the total loan cost down via repayment over 10 years.
Cons: Could be less affordable due to higher monthly payments.
If you’re paying off a parent PLUS loan, you’ll automatically be enrolled in the standard repayment plan, which involves a 10-year repayment term with fixed monthly payments. There’s nothing wrong with this option, as long as you can afford to make the monthly payments. Stay on track, and you’ll have the loans paid off in 10 years.
The problems with standard parent PLUS loan repayment only surface if you can’t afford to keep up with the bills. In such cases, consider pursuing another repayment option, such as ICR, instead of risking default.
It’s worth noting that graduated repayment and extended repayment plans are also available. However, these might not be preferable to ICR or other options. Extended repayment, for instance, adds more time and interest to your overall payment, but it doesn’t end in loan forgiveness. These plans could give you a lower monthly payment now, but the added interest costs could be pretty high.
Take control of your parent PLUS loans
Consider the choices above to determine which is the best fit for your plans and your income level. (And while we’re on the subject, don’t forget to check if you’re eligible for a student loan interest tax deduction.)
Overall, the best option for you will depend on your situation. But the right choice is typically the one that allows you to pay off your student loans as quickly as possible — with the lowest cost.
Rebecca Safier contributed to this report.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.48% APR (with Auto Pay) to 7.82% APR (with Auto Pay). Variable rate loan rates range from 2.43% APR (with Auto Pay) to 7.21% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.45% effective May 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.43% – 7.21%1||Undergrad & Graduate|
|2.43% – 6.65%2||Undergrad & Graduate|
|2.43% – 6.59%3||Undergrad & Graduate|
|2.44% – 6.87%4||Undergrad & Graduate|
|2.46% – 7.08%5||Undergrad & Graduate|
|2.63% – 9.67%6||Undergrad & Graduate|