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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:

  1. Take stock of your credit score and correct any errors
  2. Calculate your total loan balance to determine the amount you’ll need to refinance
  3. Compare several lenders’ rates
  4. Choose the lender that best meets your needs
  5. 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.

 

Sources

 


 

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.

 

Note: Links to other websites are provided as a convenience only. A link does not imply SouthEast Bank’s sponsorship or approval of any other site. SouthEast Bank does not control the content of these sites.

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Dad with Parent PLUS loans hugging daughter
2020-09-16
Should You Refinance Private Parent Loans in 2020?   

Are you a parent who took on student loans for your child to attend school? If so, you are not alone. As of 2019, over 3.4 million people have Parent PLUS loans. The payment of the loans may become burdensome as the desire to save and enjoy retirement approaches. If extra money in your budget could help, Parent PLUS loan borrowers may want to take advantage of the current low rates and refinance the student loans they took on for their children.  

Types of Parent Loans

Before you decide whether refinancing is beneficial for you, it’s helpful to know what types of loans you have. Parents may have private parent loans that are borrowed through a private lender such as a bank, or Parent PLUS loans that are borrowed through the federal government. Parent PLUS loans are also known as Direct PLUS loans. Here’s a breakdown of how the two types of parent loans differ:
  • Interest Rates: Typically private parent loans will have a lower interest rate than Parent PLUS loans. Parent PLUS loans can have an interest rate as high as 7.06% in recent years, whereas private parent loans can have an interest rate of around 4%.
  • Loan Terms: Private parent loans can also have a fixed or variable interest rate and have a loan term from 5 to 25 years. Parent PLUS loans have a fixed interest rate and an origination fee. The loan term can last from 10 to 25 years.
  • Additional Benefits: Since the Parent PLUS loan is through the federal government it is eligible for an income-contingent repayment plan, meaning the payment is based on your income and family size.
 

Current Benefits for Parent Loan Borrowers

Currently, Parent PLUS loans are eligible for benefits through the federal government due to the CARES Act passed by Congress on March 27, 2020, in response to the COVID-19 pandemic. The benefits are set to expire on September 30, 2020, however, an executive order was issued on August 8, 2020, directing the benefits to continue through December 31, 2020. The protections provided by the CARES Act, and continued through the executive order, for Parent PLUS loans include:
  • The interest rate on the loan is temporarily reduced to 0%. No interest will be accruing on the loan during this time. However, interest will begin accruing again at the previous interest rate on January 1, 2021.
  • Administrative forbearance - This provides for a temporary suspension of payments during this time. Payments are set to resume in January 2021. This means you can save money to make a lump sum payment on your Parent PLUS loan when payments resume. Alternatively, you can use the money as an emergency fund if payments become difficult to make.
  • Stopped collections - Any defaulted loans would no longer be subject to collections during this time period.
 

How to Know Whether You Should Refinance

With these benefits currently in place, it is fiscally responsible to take advantage of the federal protections provided for Parent PLUS loans rather than refinancing at this time.  However, private parent loans are not eligible for any federal protections, making them prime candidates for refinancing. Currently, interest rates for refinancing are at an all-time low because of the Federal Reserve lowering interest rates in response to the pandemic. This makes it a great time to take advantage of these low interest rates for private parent loans.   Refinancing rates for private parent loans are as low as 2.39% for a variable interest rate and 2.79% for a fixed interest rate as of September 14, 2020. This new rate could lead to significant savings depending on your current balance, rate and loan term. At ELFI, you can prequalify to see what rate you would be eligible for. You can also use our Student Loan Refinance Calculator to get an estimate of your savings based on a range of interest rates.*   Not only does refinancing private parent loans save you money monthly by securing a lower interest rate, but refinancing to a lower interest rate also saves you in interest costs over the loan term. In addition, the other benefits of refinancing private parent loans are:
  • Combining multiple private and federal Parent PLUS loans into one loan with one payment
  • Changing the loan term length by either shortening it to save on interest costs or lengthening it to lower your monthly payments
  If refinancing sounds right for you, it’s important to know the eligibility requirements. These will make you more likely to qualify for the best rate at ELFI:
  • A strong credit history, with a minimum credit score of 680
  • Steady employment with a minimum income of at least $35,000
  When you refinance student loans at ELFI there is never an application fee or origination fee. You will also never pay a prepayment penalty.

Bottom Line

Although interest rates are at a record low, it is advantageous to benefit from the current Parent PLUS loan protections for the time being. Then, in 2021, you can take advantage of the low interest rates if you choose to refinance. If you have a private parent loan, now is a great time to lock in a lower interest rate and start saving some money.  
  Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no­­­ control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.   *Subject to credit approval. Terms and conditions apply.
photo representing financial aid options for middle income families
2020-02-10
Financial Aid Options for Middle-Income Families

It’s no secret that college comes with a hefty price tag. Every year, students and their families have to figure out how they’re going to pay thousands of dollars in school bills. While high-income families may have the resources to pay tuition, footing the entire bill just isn’t realistic for some families, especially if they have more than one child attending college. This is why many students rely on financial aid to fund their education.

 

It’s generally known that students from lower-income families can qualify for special scholarships and grants that help fill the gap to fund their education, but for families around the middle-income tier, financial aid options may be harder to come by and make them feel that their options are limited. Rest assured that there are options for middle-class families to receive the financial assistance they need – it just may take a bit more effort.

 

FAFSA

When it comes to looking for financial aid for college, the FAFSA is a great place to start. The Free Application for Federal Student Aid has no income cutoff for eligibility, so your child could still receive some need-based aid from the FAFSA, especially if he or she plans on enrolling at a higher-cost school. The FAFSA opens October 1 every year, and you can apply as early as the year prior to your child’s first day of college. The earlier you apply, the more likely your child is to receive financial aid. 

 

Scholarships

Researching and applying for scholarships has continually proven itself worthy of the effort. Many scholarships are merit-based instead of need-based, so your child may be eligible for many different scholarships depending on the qualifications. Start by looking for local scholarships – many locally-owned businesses and organizations offer scholarships for graduating high school students. If your child visits the school guidance office, they may have some applications on file. You or your spouse could also ask your employer if they offer any type of scholarships or financial aid for employees’ children. After exhausting local options, your child may want to research national opportunities. A quick web search could reveal countless free scholarships – Niche, Fastweb, and eCampusTours are a good place to start. Finally, many colleges offer merit-based scholarships and endowment scholarships. Make sure your child looks for institutional scholarships at the school he or she plans to attend. You may discover that if your child joins a club or raises a standardized test score by a couple of points, he or she could receive thousands more dollars of financial aid.

 

Tuition Discounts

If a family member, such as a parent or grandparent attended the same college or university you're enrolled in, you may receive a tuition discount. There may be additional requirements to qualifying for this discount, such as, your family member being active in the school's alumni association or maintaining a certain GPA.

 

Tax Rewards

Middle-income families are perfectly positioned to receive tax credits for college expenditures. For example, the Lifetime Learning credit has income requirements that exclude those who earn over and under certain amounts. Programs like this, as well as tuition savings plans, offer a few different ways for middle-income families to receive tax benefits.

 

Federal Loans

If you’ve taken advantage of all your financial aid options and find you still have more to pay, it may be time to consider loans. Non-need based federal loans such as the Unsubsidized Federal Stafford Loan for students and the Federal PLUS Loan for parents can bridge whatever gap you find in your aid and your expenses. Federal education loans generally have low interest rates or may be tax-deductible, so they’re a smart alternative to using a credit card, for example.

 

Private Loans

You may find that you still need financial assistance after exhausting all the options above. If that’s the case, private student loans may be for you. We always recommend you take advantage of grants, scholarships, and federal aid before taking out a private student loan. To learn more about ELFI’s private student loan options,* click here.

 

The cost of college can present a challenge for families at all income levels, but middle-income families often struggle the most to find good financial aid options because their finances fall between affording college and needing assistance. If your family is in this situation, don’t let it get you down. The options in this article are a good place to start searching for financial assistance. Don’t lose sight of the end goal – getting the degree you want and establishing a successful career. If you’re already looking for financial aid options, you’re well on your way.

 
  *Subject to credit approval. Terms and conditions apply.  

Note: Links to other websites are provided as a convenience only. A link does not imply SouthEast Bank’s sponsorship or approval of any other site. SouthEast Bank does not control the content of these sites.

parent and child looking at status of student loans
2020-02-05
7 Tips for Parents Paying A Child’s Student Loans

By Tracey Suhr   $233,610. This is the amount of money today’s average American family can expect to spend raising one child. If this seems like a lot, get ready for more sticker shock since this doesn’t include the cost of college. The average tuition at a public in-state school for the 2019-2020 school year is $10,116. Multiply that by four years (plus student loan interest), and you’re adding another $50,000+ to the total cost of raising a child.    If you’re reading this blog, you’re likely well aware of the cost of college, and you might now be looking for ways to help your son or daughter pay their college debt. Your recent graduate likely has a student loan (and if they’re lucky, parents who offered to make payments toward that loan). Or you might have taken out a parent loan* to fully cover the cost of college for your child. Either way, those loans are staring you in the face, begging to be paid.   Luckily, there are no rules against helping your son or daughter pay off student loan debt. Here are some tips for parents who are paying a child's student loans.  

Set Up Automatic Payments

The easiest way to help manage your child’s student loan debt is by setting up automatic payments from your checking or savings account. We all get busy and forget items on our to-do list. And while one or two missed payments might not make a difference, several can result in late fee charges and dings on your credit, especially if the loan is in your name or if you were a co-signer for the loan.   

Play By the Rules (Tax Rules)

If you help pay your child’s student loan debt, you might need to pay gift tax and file a gift tax return during tax season. A gift tax applies to the giver (that’s you) and to any contributions more than $15,000, as of 2020. Tuition is excluded from gift tax but, unfortunately,  loan payments are not. Double-check current IRS regulations around loan payments before making the decision to help pay your child’s student loan debt. Here is a current FAQ list around gift tax.  

Focus on Loans with High-Interest Rates

Look at all your loans—car loans, mortgage loans, credit card debt—and focus on those with the highest interest rate. If you have a credit card with an 18% interest rate, and the interest on your child’s student loan is just 8%, it would be wiser to focus on paying your card first. Even adding an extra $50 or $100 per paycheck to those higher rate loans can help in the long run.  

Prepay the Loan

If you receive a bonus or a cushy tax return, allocate those extra funds toward the student loan debt. By paying down your child’s student loan faster, you can reduce the total amount of interest paid over the life of the loan by paying less monthly interest.    You can also allocate extra funds toward paying your child’s student loans by rearranging other existing finances. For example, if you have multiple credit cards, consolidate the balances into one loan. A single loan with a fixed interest rate that’s lower than the APR on your credit card will help you simplify and save.   

Refinance Student Loans

Refinancing student loans is another way to simplify payments and readjust finances. Whether the loan is a parent loan or student loan, reducing the interest rate lowers monthly and total loan payments. You can also change the term of the loan to 5, 7, or 10 years to help lower monthly payments, allowing you to reallocate funds to other expenses or debts (refer back to our tip about paying off debts with high-interest rates first).   Related >> Should You Refinance Parent PLUS Loans?   ELFI offers student loan refinancing options for both parents and students, with some of the lowest student loan refinancing rates available and flexible terms. We also have no application fees, no loan origination fees, and no penalty of paying off your student loan early. See how much you could save with ELFI Student Loan Refinancing*.  

Set Up Biweekly vs. Monthly Payments

You might have noticed that some months, you get an extra paycheck. This is because the 52 weeks in a year don’t evenly divide into four weeks for every 12 months. You can take advantage of these extra four weeks by setting up biweekly loan payments. If your monthly payment is $300, and you readjust to paying $150 every other week, you pay the same amount each paycheck, but end up with an extra loan payment paid over the course of a year. This pays your student loan debt faster. Another bonus? This tip works for paying off any loans, not just student loans.   

Fully Understand Your Offer

Paying your child’s student loans, whether partially or in full, is a generous offer. It can help your new graduate get on his or her feet in the working world. It can also help free up money for dealing with other debts or life’s unexpected surprises. Since your offer also impacts your financial situation, be sure you fully understand the pros and cons. Consider how close you are to retirement, and if your 401k or other funds will suffer. Be aware of the balances and interest rates in your other debts.    Whether or not you chose to help your child pay their loan, student loan refinancing (or even refinancing your parent loan) can help avoid the hassle of multiple payments and get a more affordable rate and flexible terms. See if you qualify for student loan refinancing*.   
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.