Should You Refinance Parent PLUS Loans?October 25, 2019
Parents spend their days and (sleepless) nights trying to create the best lives for their children. We bake cookies for bake sales, we spoil them on their birthdays, we shuttle around town to dance classes and lacrosse games, and we even take out loans for them—big loans—to help them pay for college. So what happens when your baby is all grown up and graduated from college? You cry. You celebrate. Then you get to refinance your Parent PLUS Loan so you can put a little money back in the “Me” column of your budget.
Refinancing Parent PLUS Loans can feel especially freeing since they often have a higher interest rate than the loans private lenders offer. For the 2019-2020 school year, Parent PLUS Loans carried a heavy interest rate of 7.08%.
If one or more of the following apply to you, then refinancing could be a great way to shed some of that interest from your monthly loan payment:
- You’re gainfully employed in a mid- to high-income job
- You have a low debt-to-income ratio
- You have a good credit score
- Your loan has a high variable interest rate
- You want to avoid hidden fees
- Federal Reserve rate cuts have resulted in low refinancing rates
When Not to Refinance a Parent PLUS Loan
Depending on your financial situation and long-term goals, refinancing right away may not be the ideal choice. For example, if you’re currently using an alternative federal repayment plan like a Graduate or Extended Repayment plan, it may be wise to consider the pros and cons of refinancing and letting go of these benefits.
Additionally, if your job with a qualified nonprofit or governmental agency makes you eligible for any type of Public Service Loan Forgiveness, you may choose to crunch the numbers before refinancing.
If you’re still on the fence, here are a few additional scenarios in which refinancing may not be your best option:
- You’re expecting your income to drop in the near future
- You recently declared bankruptcy
- Your credit score recently dropped
- Refinancing will slow down your repayment plan
What is a Parent PLUS Loan?
Skip ahead if you’re already the proud owner of one of these loans.
A Parent PLUS Loan is a federal education loan taken out by parents to help pay for their child’s college tuition. The U.S. Department of Education actually offers Direct PLUS Loans to parents or graduate and professional students—the loan is simply called a Parent PLUS Loan when it’s made to a parent.
These loans are available to moms and dads of dependent undergraduate students and offer one way to pay for your dependent child’s college education. Parent PLUS Loans differ from other college loans because the parent assumes complete financial responsibility. If payments aren’t made on time, it affects the credit score of mom and/or dad.
While some parents may be eager to help foot the bill for their child’s education, you should always explore private student loans, since Parent PLUS Loans come with origination fees while private student loans typically do not. You should also compare the interest rates on the Parent PLUS loans to rates offered by private student loan companies such as ELFI1.
When evaluating the costs of Parent PLUS loans vs private student loans, you should compare the annualized percentage rate, or APR, which includes both interest and origination fees. In addition, private lenders offer the ability to have your child/dependent be a co-signer on the loan whereas the Parent PLUS loan does not.
Options for Refinancing Parent PLUS Loans
Even though your child/dependent may not have graduated from college yet, you can lower your debt burden by taking advantage of refinancing your Parent PLUS loans (and private student loans). Refinancing can potentially save money by either lowering your interest rates and/or extending the term of your payment.
The good news about refinancing Parent PLUS loans is that you can refinance student loans more than once, assuming you qualify. So you can refinance your Parent PLUS Loans at any time with a private lender even before your dependents/children graduate! If you have multiple Parent PLUS loans, you can combine them all, if economic, when your dependents/children graduate as well!
Although Parent PLUS Loans originate through the U.S. Department of Education, they can only be refinanced through private lenders. Refinancing your Parent PLUS Loans with ELFI1 could mean:
- Lower Interest Rates
- Different Interest Types (Variable1 vs Fixed)
- One, Simple Payment
- Choose a New Repayment Term Length
How to Refinance Parent PLUS Loans
To ensure you receive the best possible interest rates, it’s important to get organized before refinancing. Here are a few steps to optimize your finances before signing on the dotted line:
- Take stock of your credit score and correct any errors
- Calculate your total loan balance to determine the amount you’ll need to refinance
- Compare several lenders’ rates
- Choose the lender that best meets your needs
- Apply to refinance your Parent PLUS Loan with the lender you’ve chosen
Refinancing Parent PLUS Loans to Your Child or Student
One reason many parents refinance their Parent PLUS Loans is to shift the responsibility to their children after they graduate and become gainfully employed.
Especially if you’re looking to save for retirement or to meet other monetary goals in the near future, refinancing your Parent PLUS Loan could offer the financial freedom you’re looking for. Refinancing can also help your child build credit by making their own loan payments.
If your child’s credit score is stronger than your own, refinancing is an exceptional option, as your child may be eligible for lower interest rates.
Risks of Refinancing Parent PLUS Loans
While refinancing has several pros, if you rely on federal loan benefits, take the time to consider whether refinancing will move you toward your goals. Saving is always a priority, but never at the expense of moving further away from the financial finish line.
If you currently use an income-based repayment plan, refinancing your Parent PLUS Loan with a private lender means you’ll lose this benefit. Before refinancing, take the time to determine whether the change will help or hurt your long-term financial health.
Additionally, some nonprofits and government agencies are eligible for Public Service Loan Forgiveness after a certain period of time. If you’re a long-standing employee with one of these organizations and are around the corner from having your loans forgiven, crunch the numbers before refinancing to be sure it won’t cost you more in the long run.
Finally, private lenders don’t recognize federal loan deferment or forbearance, so be sure before you switch lenders that refinancing is the best choice. Take some extra time, if need be, to ensure you make the best money move for your current financial situation.
Refinance Your Parent PLUS Loan with ELFI
If you’re a parent who financially supported your child’s education through a Parent PLUS Loan, see if you qualify for student loan refinancing or simply learn more about our Parent Loan Refinancing options. Refinancing could establish flexible repayment plans and competitive interest rates that could lower your monthly payments or total cost of the loan. ELFI Customers reported saving an average of $309 every month and an average of $20,936 in total savings after refinancing student loans with Education Loan Finance2.
If you’re considering refinancing your Parent PLUS loans and/or your private student loans, consider a refinanced Parent Loan from ELFI1. ELFI provides parent loans with flexible payment terms of 5, 7, and 10 years and no penalties for paying them off early1.
You can refinance both your Parent PLUS loans and your private loans into a single private loan. Rest easy knowing you’ve secured a low-interest rate and chosen a repayment plan that’s tailored to fit your lifestyle.
If you’re ready to refinance your Parent PLUS Loan, click here to learn more and to start your application.
1Subject to credit approval. Terms and conditions apply. The interest rate and monthly payment for variable rate loans may increase after closing. Your interest rate will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.10 per $1,000 borrowed. To qualify for refinancing or student loan consolidation through Education Loan Finance, you must have at least $15,000 in qualified parent loan debt and the student must have earned a bachelor’s degree or higher from an approved post-secondary Education Loan Finance institution. Education Loan Finance Parent Loans are limited to a maximum of the 10-year term.
2Average savings calculations are based on information provided by SouthEast Bank/Education Loan Finance customers who refinanced their student loans between 8/16/2016 and 10/25/2018. While these amounts represent reported average amounts saved, actual amounts saved will vary depending upon several factors.
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