If you’ve borrowed money to help pay for your child’s education, you may have had a choice to start making payments now or wait until after they’ve graduated.
Depending on your situation, though, waiting could ultimately make your parent student loans more expensive. If you’re thinking about how to pay off Parent PLUS Loans or private student loans, refinancing may be the best place to get started.
How to refinance Parent PLUS Loans
Student loan refinancing is the process of replacing one or more existing student loans with one new loan through a private lender. You can refinance Parent PLUS Loans, private parent loans or even a mix of both.
The process for how to refinance Parent PLUS Loans (or private loans) begins with shopping around and comparing rates. Private lenders often provide competitive rates that make it possible for you to pay less than what you’re paying right now on your student debt.
Once you’ve found the right lender, you’ll submit an application, providing some information about yourself and your student loans. The lender may also ask for documentation to prove income, employment and other aspects of your application.
If you get approved, the lender will pay off your existing student loans directly, so you don’t have to worry about it. Then you’ll start making monthly payments on the new loan.
Approval may not be possible for everyone, though. According to data gathered by Purefy, the average credit score and annual income of people who have refinanced student loans are 774 and $98,156, respectively.
Of course, that doesn’t mean you can’t get approved for a refinance loan if you don’t meet those averages. Many student loan refinance companies offer approval for borrowers with credit scores in the upper 600s.
However, the better your credit score and the higher your income, the greater the chance you’ll have of getting approved with a favorable rate. If you can’t get approved on your own, you may be able to improve your chances with a creditworthy cosigner.
4 reasons to refinance Parent PLUS Loan debt while your child is still in school
Even if refinancing is your ultimate goal, you may be waiting until your child graduates and your six-month grace period ends before you initiate the process. However, here are four reasons to consider starting that process sooner rather than later:
- You’ll save on interest: While you may not need to make monthly payments right now, interest is accruing on your student loan balances. Once you’re required to start making payments, the lender will capitalize that interest and add it to your balance. This effectively means that for that portion of your student loans, you’ll be paying interest on interest. Refinancing and starting to make payments now could save you hundreds or even thousands of dollars.
- You’ll have some flexibility with payments: Private student loan companies typically offer repayment terms ranging from five to 20 years, giving you a lot of ways to craft your student loan repayment strategy. If you want to pay off your debt sooner, opt for a shorter term with higher monthly payments to make that happen. If you want a more affordable payment and don’t mind paying more in total interest, consider a longer term.
- You’ll have a choice in who you work with: Figuring out how to pay off Parent PLUS Loans can be difficult if you’re having trouble with your federal loan servicer. You can change your servicer with a Direct Consolidation Loan, but that process increases your interest rate slightly, so it may not be worth it to have a different servicer. With refinancing, you have the potential to get a lower interest rate and also choose the right lender for you based on features and customer reviews.
- You’ll avoid putting it off: The older you get, the harder it will be to keep up with your monthly payments, especially if you’re nearing retirement. As such, the sooner you can eliminate your student loan debt, the better. Refinancing your loans comes with all of the other benefits we’ve covered, along with giving you the push you need to start paying down what you owe.
It’s important to keep in mind, though, that the process of how to refinance Parent PLUS Loans also includes considering the potential drawbacks.
For starters, if you qualify for the Public Service Loan Forgiveness program, you’ll no longer be eligible if you refinance your federal loans with a private lender. Also, Parent PLUS Loans are eligible for the income-contingent repayment plan, which isn’t as generous as the other income-driven repayment plans, but it can still be a lifesaver if you’re struggling financially.
If you anticipate needing that plan, you may be better off with what you have now.
How to compare student loan refinance rates for parent loans
If you’re considering student loan refinancing, the best thing you can do is to shop around and compare rates from multiple lenders. This will give you the chance to look at different features and also ensure you get the lowest rate that you qualify for.
Student loan companies typically allow you to get prequalified and view rate quotes without a hard credit check, but going through this process with three to five (or even more) lenders can be time-consuming. Instead, consider using the Purefy Compare Rates tool to view rate quotes from multiple lenders side by side.
Should I refinance Parent PLUS Loans?
Now that we’ve covered how to refinance Parent PLUS Loans and how to pay off Parent PLUS Loans, you may be wondering whether it’s even the right move for you. Unfortunately, the answer to that question is based on your situation, budget and financial goals.
As a result, take some time to research the process. Also, look at your budget and capacity for making payments right now and whether you might need access to federal student loan programs that private student loan borrowers don’t get.
As you do your due diligence, you’ll be in a better position to make the right decision for you and your student loan repayment.