As a parent, you want to give your child every opportunity so they can succeed. For many, that means helping your child with the cost of a college education.
While you may contribute money from your savings, an increasing number of parents are taking out student loans to pay for their children’s undergraduate degrees. Approximately 25% of loans for undergraduate study are taken out by parents, up from just 14% in 2013.
Parent student loans can have high rates, making it difficult to get out of debt. But, there is one strategy that can help you save money and repay your loans faster: parent student loan refinancing.
What Is Parent Student Loan Refinancing?
Parent student loan refinancing is a process where you take out a new loan from a private lender and use it to pay off your existing parent student loans that you took out to pay for your child’s education. You can use parent student refinancing to pay off both federal and private student loans, and you can combine your loans into one new loan.
With refinancing, you can potentially qualify for different rates and terms than you have on the existing accounts. Depending on your goals and credit, you could qualify for a lower rate, reduce your monthly payment, or pay off your loans faster.
What Are the Benefits to Student Loan Refinancing as a Parent?
As a parent, there are some significant benefits to refinancing:
You May Qualify for a Lower Rate – If you have good credit, you may be eligible for a lower rate through refinancing than you have on your existing parent loans. As a result, refinancing could lower your monthly payment, help you reduce your interest costs, and pay off your loans faster.
You Can Combine Your Loans – If you took out loans every year your child was in school — or if you have multiple children who you took out loans for — you likely have several parent student loans. Tracking the different loans, due dates, and payment amounts can be confusing and overwhelming. With parent student loan refinancing, you can combine your loans into one, easy-to-manage loan.
What Are the Risks of Refinancing?
Although parent student loan refinancing can be useful, there are some downsides to consider:
Not Everyone Qualifies for a Lower Rate – Typically, you need very good to excellent credit to qualify for the lowest rates. And, depending on when you took out your parent student loans, you may have an unusually low rate to start with, so qualifying for a lower rate may not be realistic.
You’ll Lose Federal Benefits – If you have federal Parent PLUS Loans, you can take advantage of perks like income-driven repayment (IDR) plans if you can’t afford your loan payments under a standard repayment plan. But, if you refinance Parent PLUS Loans, they become private loans, and they no longer qualify.
How to Refinance Parent Loans
If you’ve weighed the pros and cons and decided to move forward with refinancing, follow these steps:
- Gather your loan information: If you have multiple loans, download the loan statements, including account numbers, for each loan.
- Collect other documents: The loan application will ask for your identification, income, and employment information, so you may need your driver’s license and tax return or recent pay stubs.
- Request a quote: You can usually get rate quotes online without affecting your credit.
- Choose a loan: Select a loan term and rate that works for your needs. A shorter term will usually allow you to secure a lower rate, while a longer term will give you a smaller monthly payment.
- Consent to a credit inquiry: Once you have selected a loan, submit your loan application. The lender will usually ask you to consent to a hard credit check, which can affect your credit.
- Wait for a response: With some lenders, you’ll receive a decision within hours. But, some lenders may take longer, or may request additional documentation. Until you receive an answer and a confirmation your existing loans are paid off, continue making the required payments.
- Set up an online account: Once the refinancing loan is approved and the old parent loans paid in full, set up an online account for the new loan. Going forward, you’ll make one loan payment to the refinancing lender (or its loan servicer), so setting up an account will allow you to make payments more quickly.
Considering Refinancing Your Parent Loans?
ELFI’s refinancing options are designed to help you manage student loan debt, whatever your financial goals, and have been trusted by thousands of individuals and families across the US. In fact, ELFI’s Parent Loan Refinancing has been recognized as a leading product in the industry by reviewers like NerdWallet.
Ready to learn more about how refinancing may benefit you? Begin exploring your rate options with no impact to your credit score!
