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Key Differences Between Refinancing Parent PLUS and Private Student Loans

Kat Tretina

When it comes to covering the high cost of college expenses, parents often help their kids out with the bill.

According to a recent survey, parent income and savings typically cover 30% of the price tag for a college student’s education. However, parents usually borrow enough money to cover an additional 10% of their child’s college expenses as well.

Unfortunately, taking out parent student loans can be expensive. They often have higher interest rates than other types of loans, leading you to pay back more in interest charges.

With such high rates, student loan refinancing can be a good solution for managing your debt. If you’re wondering how to refinance private student loans or how to refinance Parent PLUS Loans, here’s what you need to know.

What is student loan refinancing?

With student loan refinancing, you apply for a loan from a private lender for the amount of your existing student loan debt. Your new loan has different repayment terms than your old ones, including minimum monthly payment, loan term, and interest rate.

How to refinance Parent PLUS Loans

If you took out federal student loans to pay for your child’s education, you may be wondering if you can refinance Parent PLUS Loans. The answer is yes — you can refinance Parent PLUS Loans by working with a private lender.

However, there are some pros and cons to keep in mind before submitting your application.

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Benefits of refinancing Parent PLUS Loans

Refinancing Parent PLUS Loans may sound intimidating, but there are seven key benefits to refinancing your federal parent loans.

  1. You can lower your interest rate: At 7.08%, Parent PLUS Loans currently have the highest interest rate of any federal student loan. If you have good credit and stable income, you could qualify for a loan with a lower rate, allowing you to save substantially.
  2. You can pay off your debt sooner: With a lower interest rate on your parent loans, more of your monthly payment will chip away at the principal balance rather than toward interest charges. That lower rate can help you pay off your balance faster, which can come in handy as you approach retirement age.
  3. You can streamline your payments: If you took out multiple loans — or took out loans for more than one child — refinancing can allow you to consolidate your loans together. Moving forward, you’ll have only one loan to manage and one monthly payment to remember.
  4. You can take advantage of variable interest rates: Parent PLUS Loans only have fixed interest rates, meaning the rate stays the same for the length of the loan. But when you refinance, you can opt for a variable rate loan. Choosing a loan with a variable interest rate can be a smart idea if you want to pay off your debt early since you can take advantage of a lower initial rate.
  5. You can choose a longer loan term: Refinancing lenders offer loan terms as long as 20 years. If you can’t afford your current payments, a longer loan term can make them more affordable.
  6. You can transfer the loans to your child: With parent student loans, you’re legally responsible for repaying the loan — not your child. But with student loan refinancing, you can transfer the loans into your child’s name, eliminating your obligation to repay the loan. That benefit is a huge advantage, as it can help free up cash flow and even help you when you apply for other forms of credit, such as mortgages or car loans.
  7. You can choose a better servicer: If you’re unhappy with your current lender or loan servicer, you can choose a new one with better customer service and benefits by refinancing your debt.

Drawbacks of refinancing Parent PLUS Loans

While refinancing your Parent PLUS Loans can help you save money, pay off your debt faster, or even transfer your debt to your child, it’s not a good strategy for everyone. Before refinancing your debt, keep these three disadvantages in mind:

  1. You’ll lose eligibility for loan forgiveness: Once you refinance your Parent PLUS Loans, you’re no longer eligible for federal loan forgiveness programs like Public Service Loan Forgiveness or Teacher Loan Forgiveness.
  2. You can’t apply for income-driven repayment plans: After you refinance your loans, you won’t be able to take advantage of income-driven repayment plans. Parent PLUS Loans are eligible for income-contingent repayment (ICR) if you consolidate your debt with a Direct Consolidation Loan. But once you refinance, you no longer have that option.
  3. You may not qualify for a loan: Not everyone is eligible for student loan refinancing. The criteria varies from lender to lender, but in general, you need to have good credit and steady income to qualify for a loan and to potentially get a lower interest rate than you currently have.

How to refinance private student loans

The key difference between refinancing Parent PLUS Loans and refinancing private parent student loans is that you don’t sacrifice federal protections when you refinance private parent loans. They’re already private loans, so you won’t lose any federal benefits or perks.

For this reason, if you can lower your rate on your private student loans by refinancing, it’s usually a no-brainer.

With private student loan refinancing, you can choose between variable and fixed-interest rate loans, and repayment terms as long as 20 years.

If you decide that student loan refinancing is right for you, use Purefy’s Compare Rates tool to get started. You can get estimates from top refinancing lenders with no impact on your credit whatsoever.

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ELFI Rate Disclosure

4 ELFI Rate Disclosure:

Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. Interest rates current as of 12/01/2022. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and 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 $11.00 per $1,000 borrowed. Rates are subject to change.

SoFi Rate Disclosure

3 SoFi Rate Disclosure:

Fixed rates range from 4.49% APR to 8.99% APR with a 0.25% autopay discount. Variable rates from 4.49% APR to 8.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

Earnest Rate Disclosure

2 Earnest Rate Disclosure:

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.64% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 4.24% APR to 8.54% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

ISL Rate Disclosure

5 Iowa Student Loan Rate Disclosure:

Fixed Rate Loan Terms: 5 years/60 monthly payments, 7 years/84 monthly payments, 10 years/120 monthly payments, 15 years/180 monthly payments, or 20 years/240 monthly payments. Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. This rate is expressed as an APR. Fixed APRs range from 3.94% to 8.48% APR [low to high range with 0.25% auto-debit rate reduction]. Rates are subject to change without notice. Fixed rates will not change during the term. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan including a 0.25% auto-debit rate reduction. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. All estimates are based on information provided by you and are for informational purposes only, accuracy is not guaranteed and may not reflect actual rates or savings and do not constitute an offer of credit. Your actual rate, payment and savings may be different based on credit history, actual interest rate, loan amount, and term, including your cosigner [if applicable]. If applying with a cosigner, we use the higher credit score between the borrower and the cosigner for approval purposes. All loans are subject to credit approval.

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