Refinancing Parent PLUS Loans: A Smart Move

Bringing your child up for success is every parent’s goal. We all want the best for them, including their education. Today, most of us won’t have the savings to send our kids to college without taking out a loan. If you’re like many others, you’ve taken out a Parent PLUS Loan. The Parent PLUS Loan is a federal loan through the U.S. Department of Education, taken out by the parent to pay for the costs of the dependent child’s schooling.

According to a CNBC article, there are 3.4 million Parent PLUS borrowers who collectively owe nearly $90 billion in Parent PLUS Loans, with an average balance of about $26,000. Jan Miller, president of Miller Student Loan Consulting, notes in a US News article: “Parent PLUS Loans cannot be transferred from the parent to the child, nor can they be combined with the student’s federal loans through consolidation.” Fortunately, Parent PLUS Loans can be refinanced.

Refinancing federal loans come with some limitations that you’ll need to consider.
There are a few protections in federal loans that you’ll be giving up, including federal repayment and forgiveness programs, loan discharge options, and deferment and forbearance. However, the thousands of dollars in potential savings may outweigh the benefits one will be forfeiting by refinancing.

Benefits to Refinancing Parent PLUS loans

As we know, with federal loans, your credit score has no bearing on the interest rate of the loan. In the 2019-2020 school year, the interest rate for all Parent PLUS Loans is 7.08 percent. This rate is high, but luckily, you don’t necessarily have to keep that rate for the term of the loan. Refinancing is a great step to take as long as you’ve weighed all possible outcomes and financial considerations. Listed are some of the benefits of refinancing your loan.

  • Money Savings– Let’s take a look at this example from Forbes: “It assume that you have a $50,000 Parent PLUS Loan at a 7% interest rate, and further assumes that you can refinance with a 3% interest rate. You can save $11,729 and lower your monthly payment by $98 per month.” Of course, you won’t know your actual savings until you check your rate it with a lender and start the process of refinancing. Many sites such as Lend-Grow allow you to check your rates for free without any impact to your credit score. Refinancing rates have been falling.  Many lenders offer starting rates as low as 3.0%.  Most Parent PLUS borrowers have a rate of around 6% to 7% so chances are that you will be able to lower your rate quite a bit if you have a good credit score and end up saving thousands of dollars in interest payments.
  • Lower Monthly Payments – You have the ability to refinance through a private institution, where your credit score is weighed into determining the interest rate of your loan. Your chance of being approved for a refinance loan will be high if you have a long (healthy) credit history and employment status. Recently, rates have dropped as low as 3%. According to Lend-Grow, an online marketplace that connects borrowers to find cheaper options to refinance student loans, a parent with a 5 year $50,000 Parent PLUS loan going from interest of 7% to 3.5%  for a 5 year loan will lower monthly payments by $80.
  • Transferring the Loan to Your Child – By refinancing your loan, you can transfer the loan from yourself to your child. Of course, you’ll need to be sure that your child is prepared to take on the loan. The lender will also investigate your child’s ability to repay the loan through employment and credit they’ve been building. If you choose this option, you will no longer be associated with the loan, and your child will be the sole borrower.

If you’re lost or overwhelmed with finding a suitable lender, there are online sites that can help you find the right lender such as Lend-Grow. Lend-Grow connects people with local lenders that are the best fit for their needs. Nish Krishna, Lend-Grow’s founder says, “Local lenders often offer low rates as they are not spending millions of dollars on brand advertising and flashy technology.”

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