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.
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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
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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:
- 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.
- 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.
- 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.