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Parent PLUS loans are a popular student loan for parents who want to help their children pay for school. Parents with good credit can use these loans to borrow the full amount of their kid’s annual college education.
However, helping your children can come at a cost. A recent Student Loan Hero survey found that 55 percent of parents owe $40,000 or more for their children’s education. To make matters worse, interest rates for Parent PLUS loans are relatively high; right now, the interest rate is 6.31%, which can cause your loan balance to grow over time.
If you’re struggling to get a handle on your debt, refinancing your Parent PLUS loan can be a smart option. Here are four different approaches you can use to take control of your debt.
1. Refinance in your child’s name
If your loans are keeping you from saving for retirement, paying down your mortgage, or making ends meet each month, one option is to refinance the Parent PLUS loan in your child’s name.
If your child has secured a full-time job and has a good credit score, they can work with a private lender to refinance the loan in their own name. Depending on their credit score and salary, they might even get a lower interest rate, reduced monthly payment, and/or different repayment term that makes managing the debt easier for them.
When your child applies for refinancing, they can choose to extend the repayment term. In turn, they could get a lower monthly payment. Or, they can choose to accelerate repayment to eliminate the debt faster.
This approach completely absolves you from responsibility for the loan. However, it’s important to note that only a select number of lenders allow you to refinance Parent PLUS loans into a child’s name. Laurel Road, SoFi, and CommonBond are some of the few willing to do so.
Parents who still want to help can offer to cosign on the new private loan to help their child get the most competitive interest rate.
2. Refinance the loan yourself
If you’re not willing to have your child take over the loan, you can still save money, get out of debt faster, or reduce your payments by refinancing the loan yourself. With this approach, you are still responsible for the debt, but you’ll have a loan with new repayment terms.
Depending on the interest rate you get and the length of repayment you choose, you could save money over the length of your loan.
Student Loan Refinancing Calculator
However, before moving forward with refinancing, keep in mind that working with a private lender will mean you’ll be ineligible for federal loan benefits. You’ll lose out on access to income-driven repayment plans, deferment or forbearance, and forgiveness programs. But if you’re focused on getting out of debt quickly, refinancing can be a wise strategy.
To get started, check out the eligibility criteria from various lenders and get a quote. Many lenders will give you a quote by doing a soft credit check, which will not affect your credit score. Once you’ve found the best lender for your situation, you can apply and get your new loan.
3. Explore your other options
If you need help with your payments but don’t want to sacrifice federal protections, there are options out there that can help.
One way to make your payments more manageable is to sign up for an Income-Contingent Repayment (ICR) plan. Under an ICR plan, the government extends your repayment term from 10 years to 25. They also cap the monthly payment at a percentage of your income, which can reduce your minimum bill.
If you still have a balance on the loans after 25 years of making payments, the government will forgive the remaining amount. The discharged total is taxable as income, but this approach could help you afford your monthly payments.
Parent PLUS loans are eligible for ICR as long as you consolidate them into a Direct Consolidation Loan first. The process to consolidate your loans is free and can be completed in as little as 30 minutes online.
Public Service Loan Forgiveness
Another way to keep your federal protections is to apply for Public Service Loan Forgiveness (PSLF). But you must work for a non-profit organization or government agency to qualify for PSLF. Under this program, the government will forgive your loans after you make 10 years of qualifying payments while working for a non-profit.
Unlike other forms of forgiveness, where the discharged amount is taxable as income, loans forgiven through PSLF are not taxable.
You can combine signing up for an ICR plan and make reduced payments, and still qualify for PSLF after 10 years.
Is refinancing Parent PLUS loans right for you?
When deciding whether or not to refinance your loans, consider not only your child’s finances, but yours, as well. If you’re getting close to retirement or are planning on a big purchase, having Parent PLUS loans can hold you back. Refinancing the loans, either in your child’s name or your own, can help reduce the burden.
For more information about managing your loans, find out how to pay off student loans faster.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Rates (APR)||Eligible Degrees|
|Get real rates from up to 4 Lenders at once
Check out the testimonials and our in-depth reviews!
|2.57% – 6.32%||Undergrad & Graduate||Visit Earnest|
|2.80% – 7.02%||Undergrad & Graduate||Visit Laurel Road|
|2.51% – 7.80%||Undergrad & Graduate||Visit SoFi|
|2.76% – 8.54%||Undergrad & Graduate||Visit Lendkey|
|2.57% – 6.65%||Undergrad & Graduate||Visit CommonBond|
|2.75% – 8.69%||Undergrad & Graduate||Visit Citizens|