More and more, student loan debt is following consumers into their golden years. Our recent Student Loans for Parents survey found that 55 percent of parents repaying student debt have more than $40,000 in student loans.
According to a recent report from the Consumer Financial Protection Bureau (CFPB), the number of older student loan borrowers has quadrupled since 2005.
Many of these borrowers aren’t paying off their own education debt, though. The CFPB reports that the majority of student loan debt is due to a child’s education. Plus, over half of cosigners on student loans are age 55 and older.
If you’re one of these older Americans with student debt, there’s a good chance you have a Federal Direct Parent PLUS loan. And, unfortunately, that federal parent loan might be putting your retirement at risk. Depending on your situation, you might be able to rescue your retirement by refinancing Parent PLUS loans.
How older consumers are impacted by Parent PLUS loans
The CFPB report indicates that nearly 40 percent of older federal student loan borrowers are in default. This isn’t surprising when about 39 percent of parents repay these student loans without help from their children.
It’s not just about getting help making payments on Parent PLUS loans. The fact that some of your income has been going toward paying on a child’s or grandchild’s student debt means that retirement probably hasn’t been the highest priority. The CFPB reports that borrowers approaching retirement have less saved than their counterparts.
As you near retirement, it’s vital that you do what you can to rescue your retirement. One way to get back on track is to refinance your Parent PLUS loans.
Refinance your federal parent loan
When you refinance your Federal Direct Parent PLUS loan, you replace it with a new loan. The advantage to refinancing is that you might be able to get a lower interest rate — and a lower monthly payment.
Depending on when the funds were disbursed, you might be paying an interest rate as high as 8.5%. When you refinance your Parent PLUS loans, you could be eligible for a much lower rate.
If you owe $35,000 at 6.8% for 10 more years, dropping your rate to 3.2% and extending the loan term can save you money over time:
It’s true that in this scenario, you end up with your federal parent loan for five more years. However, you save more than $4,000 in interest, and your monthly payment drops by $158.
If you’re comfortable spreading the payments out for a longer period of time, you can improve your cash flow each month. At the same time, you save overall on interest. Now that you have these savings each month, it’s time to bank that money to start catching up with retirement.
Invest the savings from refinancing
After you refinance your Parent PLUS loans, you can put those savings to work for you. Let’s say you have saved $300,000 for retirement up to this point. You know that’s not enough to retire on, but the student loan payments are sucking everything out of your budget.
If you take the $158 you save by refinancing your student loans and invest it at an average annual return of seven percent for the next 15 years, you can supercharge your retirement savings.
If you have a tax-advantaged retirement plan, use it to bolster your nest egg. The tax advantages help your money grow faster. Plus, when you pay off the loan in 15 years, you should have close to $1 million in your retirement account. You save money on your loans and build your wealth at the same time.
Refinance your Federal Direct Parent PLUS loan in your child’s name
Another solution is to transition your Parent PLUS loans to your child. There are lenders that will help you refinance your federal parent loan in your child’s name. That means your child is responsible for their own debt, and that frees you up to rescue your retirement.
If you don’t refinance, talk to your child about paying some of the loan each month. Even if your child makes partial payments, that can relieve some of the pressure on your budget.
If you are a cosigner, it’s possible to get a cosigner release in some cases. That, at least, gets you out of being responsible for the loan if your child defaults. You don’t want your child to tank your credit just ahead of retirement, especially if you plan to refinance.
Don’t wait — make your retirement plan now
Don’t let student loans ruin your retirement. Now is the time to look at where you stand — and how your federal parent loan is slowing you down.
If you have good credit and you haven’t retired yet, you might be able to refinance your Federal Direct Parent PLUS loan to a lower rate that saves you money. Once you free up cash flow, you should have more breathing room in your budget. Plus, you will have more money to invest so you can catch up with your retirement and come out ahead.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
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 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% 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 Month/Day/Year, 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 08/21/18. 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 firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent 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
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
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.
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.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.48% – 6.25%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|