Parent PLUS loans are a popular way for parents to help finance their children's education. If you went that route and are paying back those loans, you may be wondering about your refinancing options.
There are plenty of reasons to refinance Parent PLUS loans. It could help you secure a much lower interest rate. You could use refinancing to get a more affordable monthly payment. Or you may want to refinance after your child graduates and has a job so you can transfer the loan to them.
Whatever your reason for refinancing, here are all the details you need on how to do it.
Can you refinance your Parent PLUS loans?
Yes, you can refinance Parent PLUS loans, but only through a private lender.
Although the U.S. Department of Education offers consolidation on federal student loans, it doesn't offer refinancing. It also doesn't allow you to transfer your Parent PLUS loans to your child, either. You need to refinance through a private lender for that.
If you choose to refinance your loans this way, you replace them with a private student loan. This means you're no longer eligible for any potential benefits that are unique to federal student loans. That includes income-based repayment plans and loan forgiveness. Because there are very limited circumstances where Parent PLUS loans can be forgiven, this might not be a big deal.
How to refinance through a private lender
To refinance through a private lender, you need to
- calculate the total amount of the loans you're refinancing,
- compare rates through private lenders,
- pick a lender, and
- apply for a loan.
Here are more details on each step:
1. Calculate the total amount of the loans you're refinancing
Since you're applying for a new student loan to pay off your previous loans, you need to know how much those loans will cost to pay off.
You can find out your total loan balances on your Parent PLUS loans through the online account you use to make payments. Another option is to contact the loan servicer.
2. Compare rates through private lenders
Now it's time to see what kind of refinancing rates you can get through different lenders. There are a few things to check to verify that a lender is a good match:
- The amount you need to borrow is within their lending limits.
- You meet their minimum credit score requirements (if you don't know yours, here are some ways to check your credit score).
- They offer the term length you need.
Once you have some lenders in mind, go to their websites and see what kind of rates you prequalify for.
3. Pick a lender
After doing your homework on loan rates from several lenders, it's time to choose one for your loan.
You may think you should choose the lender that offers the lowest interest rate. That's an important factor in your decision, but there are a couple other things to consider.
You'll need to decide whether you want to refinance with a fixed or variable interest rate. This could affect your choice of lender, as the lender with the lowest fixed rate may be different than the lender that has the lowest variable rate.
Also look at which lenders let you defer your loan if you can't make the payment. Hopefully you won't need to do this, but it's helpful to have that option available just in case.
4. Apply for a loan
The final step is to fill out a loan application, which you can do online. The application process requires your personal and financial information and takes 10–20 minutes.
Keep making your loan payments until you're approved for your refinancing loan. Only after you've used it to pay off your original Parent PLUS loans can you stop making your standard monthly payments.
Transferring Parent PLUS loans to your child
The process for transferring Parent PLUS loans to your child is similar to the refinancing process described above. The difference is that your child needs to apply for the refinancing loan with their own information.
After they're approved for the loan, they can use it to pay off your Parent PLUS loans.
There are two common reasons to do this:
- You want to transfer responsibility for the student loans to your child.
- You want to refinance your loans, but your child has a better credit score and could secure a lower interest rate.
How federal loan consolidation works
While there's no federal option to refinance student loans, there is federal loan consolidation. Consolidating federal loans means you'll only have one monthly loan payment. And you can apply for an income-contingent repayment (ICR) plan.
Consolidation results in a slightly higher interest rate. You'll have the option of extending your loan term when you consolidate, which could be good or bad. It results in a lower monthly payment, but this means you end up paying more overall for your loan. The longer you have your loan, the more you'll pay in interest.
To consolidate your federal loans, fill out the Direct Consolidation Loan application online or print it out and mail it in. A consolidation servicer will get in touch with you to complete the process. Until your loans are consolidated, keep making payments like you would if you were refinancing.
It's important to note that you can only consolidate federal loans that you, the parent, took out. You can't consolidate your loans and your child's federal loans, even when all those loans were for your child's education. You and your child have to consolidate your federal loans separately.
Should you refinance or consolidate your Parent PLUS loans?
If your credit score is good enough to qualify for low rates, refinancing your Parent PLUS loans is typically a better option than consolidating them. As long as you won't have any trouble making your loan payments, you could save a lot of money.
Parent PLUS loans have a fixed interest rate of 7.6% as of 2019, and that interest rate goes up when you consolidate. The top student loan providers, on the other hand, have fixed rates under 4% and variable rates under 3%.
Consolidation is a better option if you think you could need an income-based repayment plan in the future. It's also a way to get a lower monthly loan payment if you don't have good credit.
New terms on your Parent PLUS loans
If there's anything you'd like to change about your Parent PLUS loans, refinancing is generally the best way to do it. You can see what private lenders will offer and get the terms you want, or even transfer those parent loans over to your child.
Of course, like any type of refinancing, you'll have more options the higher your credit score is. With a good to excellent score, you could end up with a much better deal on those federal loans.