The Complete Repayment Guide for Parent PLUS Borrowers

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As a parent, you want the best for your children; you try to help them out as much as you can. In some cases, this might mean helping them afford school with a Parent PLUS loan. Perhaps you’re helping them pay off their own student loans.

Repaying your children’s student loans while managing your own finances can be a tough balancing act as you near retirement. In this guide, we’ll help you come up with a plan of action, so you can successfully pay off those student loans.

Your Parent PLUS Loan Repayment Game Plan

If you’re repaying Parent PLUS loans, you are legally responsible for 100 percent of the loan repayment — not your child. Should they help out with the payments? Perhaps, but they don’t have to.

Unfortunately, Parent PLUS loans can be tough to manage with their high interest rates and potentially high balances. PLUS loan borrowers are allowed to take out loan amounts equal to the cost of attendance, minus financial aid, which could mean a hefty balance. Rates currently sit at 6.84% for the 2015-2016 school year.

If you have Parent PLUS loans, list them all out and compare with your income and expenses. How much can you afford to put toward debt each month? You’ll want to prioritize paying off student loans while also saving for retirement.

If you simply want to help pay back your kid’s student loans, talk to them about it. Let them know you want to help out where you can. Some things to ask yourself before helping your children pay back their debt:

  • How much can you afford to put toward debt each month?
  • Will this set you back from your own financial goals?
  • Will you give money to your child or will you repay the loan servicer directly? You may be able to become an “authorized payer” on your child’s loan servicer account.
  • How much are you willing to help out? (which is a different question than what you can afford). For example, do you want to help out with half or cover all of it? Or help out just a little bit? It’s up to you!

Once you’ve figured out how much you can afford to pay and how much you are willing to pay, talk to your child so you are on the same page. It’s important to set expectations and have an understanding of each of your roles in the debt repayment process.

Look Into Flexible Repayment Options and Forgiveness

If you are having trouble paying back your Parent PLUS loans, look into a new repayment plan that can make repayment easier. Unfortunately, Parent PLUS loans are not eligible for Income-Based Repayment or Pay As You Earn programs.

On the other hand, they are eligible for the Income-Contingent Repayment plan if you consolidate your loans through a Direct Consolidation Loan.

This plan caps your monthly payments at 20 percent of your discretionary income for up to 25 years. After 25 years of repayment, your remaining loans may be forgiven. However, under current tax law, forgiven student loans are considered taxable income.

This plan can be helpful if you are having trouble paying back Parent PLUS loans. But it’s important to know that you’ll pay more in interest and you may get hit with a tax bill.

If you work in the public sector, you may be eligible for the Public Service Loan Forgiveness program. Through this program, your loans can be forgiven after 10 years of repayment at a qualifying nonprofit or public agency.

If you’re interested in pursuing this option, be sure to do your research and make sure you qualify first. In addition, submit any required paperwork and stay in touch with your loan servicer about your repayment options.

If you’re assisting your child with loan repayment, help investigate the appropriate repayment option. For example, maybe your child is on the Extended Repayment plan (25-year plan), but with your financial help, they can switch to a Standard Repayment plan (10-year plan), cutting down the term and saving money on interest.

Consider Refinancing Parent PLUS Loans

Student loan refinancing can be a good option If you have Parent PLUS loans. Through the process of refinancing, you merge all of your loans into one and ideally, receive a better interest rate.

Considering the high rates for PLUS loans, refinancing could potentially save you thousands of dollars and help pay off your loans that much faster. Parent PLUS borrowers are often especially attractive candidates for refinancing, as well, as you probably have a stronger credit profile and income than new graduates.

Typically, refinancing companies want you to have a good credit score, stable employment, and enough income to pay back your loans (“enough” varies by lender). One thing to be aware of is that through refinancing, you’ll give up federal loan protections such as payment plan flexibility and the option to pursue an income-contingent plan. Depending on your situation, the benefits of refinancing may outweigh the costs.

Another option is to refinance your Parent PLUS loans into loans in your child’s name, effectively putting the responsibility on them. This option is available through Laurel Road, SoFi, and CommonBond.

Become a Cosigner

If your child has limited credit history, consider becoming a cosigner while they apply for student loan refinancing. Refinancing could save them money on interest, but if they don’t have a strong credit profile and have limited income, they may be rejected for refinancing.

By acting as a cosigner, you may be able to help your child save money on interest and get approved for refinancing. According to the Citizens Bank website,

“If a borrower has little or no credit history, Citizens Bank recommends they apply for an Education Refinance Loan with a credit-worthy cosigner such as a spouse or parent. Having a cosigner may help the borrower secure lower monthly payments and a lower interest rate, and can make it easier for them to pay down their student loan debt.”

Through cosigning, you may be able to help your child get approved for lower interest rates, effectively helping them pay back their loans. However, there’s an important thing to consider before signing on the dotted line. As a cosigner, you are legally responsible for your child’s debt if they are not able to pay it back.

In some instances, cosigner release may be an option later on. For example, Citizens Bank allows for cosigner release after 36 consecutive payments.

The terms of cosigner release depend on the lender, but typically, the borrower needs to prove they have made on-time payments and have sufficient income to pay back the loans on their own, without your help. It may take some time to be eligible for cosigner release, so think carefully about this responsibility.

Should You Tap Your Retirement Funds to Pay Off Debt?

A few years ago, my friend told me her loans were paid off. Shocked, I asked her how she did it so quickly. She let me know her mom withdrew money from her retirement fund to help pay off her Graduate PLUS loans. In return, my friend would pay her mom back, interest-free.

If you want to help your children pay off their student loans, you may have considered doing something similar. But is this a good idea?

Definitely not.

If you have the money, using retirement funds to help your child be debt-free might feel like the right thing to do. But it would be at the cost of your own financial future.

First, your child hopefully has many working, productive years ahead. They have a chance of turning their financial life around and have time to pay off their loans. On the other hand, you can’t borrow money for retirement.

You will also be hit with penalties if you withdraw your retirement money early. For example, if you withdraw from your 401k, you will pay a 10 percent withdrawal penalty in addition to federal and state income taxes. The same goes for withdrawing funds out of a Traditional IRA. Going this route could take a huge chunk out of our nest egg that could cost more than years of interest on your child’s loan.

A Roth IRA is a bit more flexible than other retirement vehicles. If you withdraw funds from a Roth IRA, you can do so without any penalties, but you may pay an additional tax on those funds.

Regardless, it’s not a good idea to withdraw your own retirement funds to pay off your children’s debt.

Gift Money to Help Pay Off Student Loans

One way you can help your children pay off their student loans is by gifting them money to make payments. You’ll want to be clear that the money is used for student loan repayment and nothing else. If you want to be sure about where your money is going, consider looking into becoming an authorized payer for their loan servicer.

You can gift small amounts for birthdays, holidays, and if you get a tax refund. If you’re looking at gifting a sizeable amount, though, be aware of the gift tax.

You can gift up to $14,000 without any issues, but if you go over that amount, your gift will count as part of your lifetime exemption. You’ll have to file a return and fill out Form 709 with the IRS. The good news? You’ll only be hit with a gift tax after you reach your lifetime limit of $5.34 million.

There’s some confusion as parents can avoid the gift tax by making applicable payments for higher education, such as tuition, directly to the university. However, current tax code doesn’t consider student loan payments as part of those qualified expenses. Bummer, I know.

Stay in Touch With Your Loan Servicer

Parent PLUS borrowers face the unique situation of paying for their children’s education while also trying to manage their own retirement savings. Unfortunately, doing both can spread some borrowers thin.

According to a report by the Government Accountability Office, borrowers 65 and over are defaulting on their loans at a much higher rate. Default can mean garnished wages, Social Security, benefits and more. The report indicates that the amount of people who had Social Security benefits garnished to offset a loan increased five-fold.

The most important thing is to stay in touch with your loan servicer and manage your payments. If you can’t afford your current plan, discuss your options with your loan servicer.

Whether you have Parent PLUS loans or just want to help your children pay back their loans, there are a variety of ways you can manage your payments. Using this guide, you can create a plan of action, so that student loans don’t have to be a permanent part of you or your child’s life.

Interested in refinancing your Parent PLUS loans?

Here are the top 6 lenders of 2018!
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Check out the testimonials and our in-depth reviews!

1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. 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.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures


4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Visit Earnest
2.80% – 6.38%1Visit Laurel Road
2.48% – 7.52%2Visit SoFi
2.57% – 6.65%3Visit CommonBond
2.72% – 8.17%4Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.