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Tina MacDonald and her husband wanted to help their son get the best education possible, so they took out Parent PLUS Loans to pay for college. However, doing so caused them to rack up over $150,000 in debt.
With a high interest rate, the loans forced them to delay other goals, such as saving for retirement. “We were able to afford our monthly payments [on the loans], but we knew we weren’t putting away enough for ourselves,” says Tina.
With two other children, Tina also needed to free up money to help them with their education. In her search for possible solutions, Tina heard about student loan refinancing and thought it sounded like a good strategy to pay off the debt.
But finding a lender willing to work with them was difficult, despite their high income. Find out how Student Loan Hero was able to help Tina take charge of her loans.
Borrowing money to pay for her children’s education
Tina’s son chose a private school for college. Although it was a great school, it was expensive. He took out his own loans but needed help to cover the rest, so Tina and her husband offered to take out loans to pay for the remaining balance.
To cover tuition and other fees, Tina took out a total of about $140,000 in Parent PLUS Loans. Unfortunately, they came with a high interest rate of 7.90%.
“After five years, [the loan balance] grew to over $150,000,” Tina says.
The monthly payments on the loans were huge, so Tina opted for a graduated repayment plan — where payments start small and increase every two years — to reduce the monthly payment.
At first, the payments were manageable, but they increasingly became difficult. By the time she started researching other options to manage her debt, her monthly payments were $1,835.
“At the time [I considered refinancing], we had been through two increases already,” she says. “In a few years, [the payments] would have been insane.”
Looking into student loan refinancing
With such a large payment, Tina worried about saving enough for retirement and her other children’s education. She began researching options online.
“I’ve always been kind of interested in finance, and I’ve always handled the mortgages and the insurance,” says Tina. “Over the past couple of years, I had been thinking about [refinancing my loans].”
During her research, she came across Student Loan Hero and signed up for the weekly newsletter. She learned about how refinancing works with Parent PLUS Loans and how it could potentially help her.
“It was a big decision and I was afraid,” says Tina. “That interest was crazy. But I kept thinking about that pending increase [with the graduated repayment plan]. My payments would have been over $3,600 a month.”
Despite the benefits of refinancing, Tina was nervous about giving up the perks that come with federal loans.
“The only thing that frightened me is that when my husband was laid off a few years ago, we were able to put our payments on hold,” she says. “It was a big deal to give that option up.”
However, Tina decided to pursue refinancing despite the possible drawbacks of refinancing federal student loans.
Finding a refinancing lender
Tina looked at our list of six refinancing lenders and ended up applying to four of them. Initially, she worried that the loans were too big to refinance all at once, so she applied to have just half of the loans refinanced.
Tina and her husband are in their late 50s and make over $300,000 per year. Although that would make them sound like ideal applicants on paper, two lenders denied them.
“Even though we’ve never been late on a payment, we were denied because we never finished college,” she says. “They wouldn’t consider us because we didn’t have a degree.”
Thankfully, she did find a lender willing to work with her and the full balance of her loans: SoFi. After completing the application online, she received an approval notification just a few hours later.
Even better, the new loan would have an interest rate of just 5.50%. With the new rate and loan term, Tina no longer has to worry about the payment growing.
“My payments are just under $1,800, but they’ll never change [like they would with a graduated repayment plan],” she says.
With more wiggle room in her budget, Tina feels more secure. “A lot of people are afraid of financial things and don’t take action,” she says. “But you can save so much money by doing it.”
Tackling your own student loans
By refinancing her loans, Tina was able to lock in a monthly payment she could afford, freeing up money to put toward her other goals. That extra cash flow will go a long way in helping her other children pay for school and for her own retirement.
For some families, Parent PLUS Loans are a serious burden. They can affect your monthly budget, your ability to get a mortgage, and even how much you can save for retirement.
If you took out loans for your child’s education and want to reduce your payments or pay off your loans faster, see if refinancing Parent PLUS Loans could benefit you.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Laurel Road.
Laurel Road Disclosures
2 Important Disclosures for SoFi.
3 Important Disclosures for CommonBond.
4 Important Disclosures for Citizens Bank.
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|2.57% – 5.87%||Undergrad & Graduate||Visit Earnest|
|2.80% – 6.38%1||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 7.52%2||Undergrad & Graduate||Visit SoFi|
|2.47% – 7.99%||Undergrad & Graduate||Visit Lendkey|
|2.57% – 6.65%3||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.17%4||Undergrad & Graduate||Visit Citizens|