Parent PLUS Borrowers’ Guide to Repayment

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Repaying a parent PLUS loan while managing your personal finances can be a tough balancing act. If you’ve taken out a parent PLUS loan, it’s important to have a strategy in place for parent PLUS loan repayment.

In this repayment guide, we’ll help you come up with an effective plan of action.

Set your parent PLUS loan repayment game plan

If you’re repaying parent PLUS loans, it’s important to brush up on the terms of the payment: You are responsible for 100% of the loan repayment — not your child. Should your child help out with the payments? Perhaps, but it’s not a requirement.

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. The interest rate for parent PLUS loan repayment is 7.08% for loans disbursed on or after July 1, 2019. Plus, there’s a loan fee of 4.236%.

If you have parent PLUS loans, list them out and compare them with your income and expenses. How much can you afford to put toward debt each month? You’ll want to pay off the student loans while saving for retirement. If the 10-year standard repayment plan isn’t feasible, consider your alternatives.

Explore income-contingent repayment

If you are having trouble paying back your parent PLUS loans, look into a different repayment plan. Unfortunately, parent PLUS loans aren’t eligible for income-based repayment or pay-as-you-earn programs.

But they are eligible for income-contingent repayment (ICR) if you consolidate them first via a Direct consolidation loan. Here’s how ICR works:

  • Offers a repayment period of 25 years
  • Caps your monthly payments at the lesser of either 20% of your discretionary income, or what the payment would be on a fixed, 12-year plan, adjusted according to income
  • Forgives loans after 25 years of repayment

It’s important to know that you may owe income tax on student loans that are forgiven.

The income-contingent repayment plan can be helpful if you were having trouble paying back parent PLUS loans. But you’ll pay more in interest and you could face a hefty tax bill.

Consider Public Service Loan Forgiveness

If you are now on an income-contingent repayment plan, you may be eligible for the Public Service Loan Forgiveness program. To be eligible, you must:

  • Work full time for an eligible government agency or nonprofit organization
  • Make 120 qualifying payments

Through this program, your loans will be forgiven after 10 years of repayment. Submit any required paperwork yearly and stay in touch with your loan servicer about your repayment options.

Look into refinancing parent PLUS loans

Student loan refinancing can be a good option if you have parent PLUS loans. Through refinancing your student loans with a private lender, you merge all your loans into one and — ideally — receive a better interest rate.

Considering the high rates for PLUS loans, refinancing could save money and help pay off your loans much faster. Parent PLUS borrowers are often especially attractive candidates for refinancing, as they might have a stronger credit profile and more 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. However, when refinancing, you give up federal loan protections, such as payment plan flexibility and the option to pursue an income-driven 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, which switches the responsibility to them. This is available through online lenders like Laurel Road and SoFi.

Ask yourself how you want to help your child with loan repayment

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

Whether you have parent PLUS loans or you want to help your children pay back their loans, there are a variety of ways to help without compromising your retirement plans.

Understanding your options, having a plan in place and thinking of you and your child as partners in paying back the loan are ways to ensure that both of your financial futures are protected.

If you’re assisting your child with loan repayment, seek the best repayment option.

Become a cosigner

If your child has limited credit history, you could consider becoming a cosigner if 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.

Remember, though, that in this case you are legally responsible for your child’s debt if they can’t pay it back.

In some instances, cosigner release may be an option down the road. For example, Citizens Bank allows for cosigner release after 36 consecutive, on-time 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.

It may take some time to be eligible for cosigner release, so think carefully about taking on this responsibility. It’s also a good idea to have a discussion with your child about expectations. What happens if they miss a payment? If they can no longer afford payments due to job loss or another circumstance, are you willing — and able — to step up and make payments? Going through “what-ifs” can help ensure there are no misunderstandings on either side.

Help without cosigning or getting a loan

If you want to help pay back your child’s student loans but don’t want to take out parent PLUS loans or be a cosigner, talk to them about it.

If you decide you want to help in this form, here are some questions to ask yourself:

  • 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? 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.
  • If you’re assisting as an authorized payer, what happens if your child gets a higher-paying job or you need more money than expected? Setting up informal monthly check-ins to see how your repayment process is going can keep both of you on the same page.

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

Important questions for parent PLUS borrowers to consider

Should you tap into your retirement funds to pay off your child’s loan debt?

If you want to help your child pay off their student loans, you may have considered tapping your retirement funds. But is this a good idea? Not really.

If you have the money, using retirement funds to help your child become 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 could have the luxury of decades 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 401(k) before you’re 59 1/2, you’ll pay a 10% withdrawal penalty, in addition to federal and state income taxes.

The same goes for withdrawing funds from a traditional individual retirement account (IRA). Going this route could take a huge chunk out of our nest egg that could cost years’ worth 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 a tax depending on the purpose of the withdrawal.

Regardless, it’s not a good idea to withdraw your own retirement funds to pay off your children’s debt. If you think you have the funds to pay off your child’s debt and comfortably afford retirement, you could consider speaking with your financial advisor about that goal.

Can you gift money to help pay off your child’s 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 to be used for student loan repayment and nothing else.

You can gift small amounts for birthdays and holidays, as well as if you get a tax refund. If you’re looking at gifting a sizable amount, though, be aware of the gift tax. You can gift up to $15,000 without any issues, but if you go over that amount, your gift will count as part of your annual exclusion. 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 $11.4 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, the current tax code doesn’t consider student loan payments as part of those qualified expenses.

Can you pay off a parent PLUS loan early?

Perhaps you came into a financial windfall from an inheritance or sold your family home, and are wondering: Can you pay off a parent PLUS loan early?

All federal student loans allow for penalty-free prepayment. But Is this a good idea? That depends.

Remember: There is no borrowing for retirement. It may make sense to use those extra funds to pad your nest egg and continue making scheduled payments, rather than wipe out the balance. A financial advisor can be helpful in discussing the pros and cons of your options.

Don’t lose sight of your financial goals to help your child

You want the world for your child. But in many cases, the best thing you can do is ensure that your own financial future is as healthy as possible. You don’t want your child to have to worry about your finances if you run out of retirement funds.

Taking care of your own funds isn’t being selfish. It’s being smart, and it’s also teaching your adult child self-reliance. Helping your child by taking out parent PLUS loans can be a huge gift to your children, but make sure you are realistic about your own financial needs.

Rebecca Safier and Melanie Lockert contributed to this article.

Interested in refinancing your Parent PLUS loans?

Here are the top 6 lenders of 2020!
LenderVariable APR 
1.89% – 6.66%1

Visit Splash

1.89% – 5.90%2

Visit Laurel Road

2.25% – 6.09%3

Visit SoFi

1.99% – 5.34%4

Visit Earnest

1.97% – 8.54%5

Visit Lendkey

2.39% – 6.01%

Visit Elfi

Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of October 1, 2020.


2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

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.

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

Interest Rate: A simple annual rate that is applied to an unpaid balance.

Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of September 9, 2020. Information and rates are subject to change without notice.
 


3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 2.99% APR to 6.09% APR (with AutoPay). Variable rates from 2.25% APR to 6.09% 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 2.25% APR assumes current 1 month LIBOR rate of 0.18% plus 2.32% 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. See eligibility details. 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. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. 

4 Important Disclosures for Earnest.

Earnest Disclosures

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 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% 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 October 26, 2020, 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 10/26/2020. 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 protected], or call 888-601-2801 for more information on our student loan refinance product.

© 2020 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.


5 Important Disclosures for LendKey.

LendKey Disclosures

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.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 11/13/2020 student loan refinancing rates range from 1.97% to 8.54% Variable APR with AutoPay and 2.95% to 8.77% Fixed APR with AutoPay.