Over the past 25 years, the average annual borrowing amount for parents has more than tripled. According to the Brookings Institute, the average Parent PLUS Loan balance is $25,600, but is steadily rising.
Worse, Parent PLUS Loans have the highest interest rates of all federal loans. While rates were slashed this past year to 5.30%, the rates for previous years were much higher — some borrowers pay as much as 7.6%.
If you’re struggling to afford the payments on your Parent PLUS Loans, you’re likely looking for alternative strategies for managing your debt, like enrolling in an income-driven repayment plan or student loan refinancing.
Below, learn about different ways to reduce your payments and how to pay off Parent PLUS Loans more effectively.
3 Ways to lower your Parent PLUS Loan payments
If you have $25,600 in Parent PLUS Loans and a 7.6% interest rate with a 10-year repayment term, your monthly payment is $305 per month. That’s like a significant chunk of your income. And, you likely have an even higher balance if you borrowed more money for your child’s education.
Luckily, there are multiple ways to reduce your monthly payments:
1. Consolidate your debt
With federal Parent PLUS Loans, one option is to consolidate your debt with a Direct Consolidation Loan. While this approach won’t lower your interest rate, it can be used to extend your repayment term. Depending on your existing loan balance, your new loan term will be between 10 and 30 years. If you’re eligible for a longer loan term, you could significantly reduce your monthly payment.
Extending your loan terms means you’ll pay more in interest charges over time. But with this strategy, your loans remain federal loans, and you get more breathing room in your budget.
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2. Apply for an income-driven repayment plan
If you have federal Parent PLUS Loans, another way to lower your monthly payment is to apply for an income-driven repayment (IDR) plan. While there are four different IDR plans, Parent PLUS Loans aren’t directly eligible for any of them. However, there is a workaround.
If you consolidate your loans with a Direct Consolidation Loan, your loans will then be eligible for one of the IDR plans: Income-Contingent Repayment (ICR). Under ICR, your monthly payment will be the lesser of 20% of your discretionary income or what you’d pay with a fixed payment over the course of 12 years, adjusted for your income.
You’ll make payments for 25 years under ICR. If you still have a remaining loan balance at the end of your repayment term, the rest of your balance will be discharged. You may have to pay taxes on the forgiven amount, but the savings can still be substantial.
While ICR can help you lower your monthly payment, keep in mind that you’ll likely still pay more in interest charges with the longer repayment term than if you remained on a 10-year repayment plan.
3. Refinance your Parent PLUS loans
If you want to reduce your payments and are willing to transfer your debt to private loans, refinancing your Parent PLUS Loans can be effective. With refinancing, you apply for a loan from a private lender for the amount of your outstanding Parent PLUS Loans. Your new private loan will have different terms.
Depending on your credit and which repayment term you choose, you could significantly reduce your current interest rate. With a lower rate, you can lower your monthly payments and even save money over the life of your loans.
For example, if you had $26,500 in Parent PLUS Loans at 7.6% interest and a 10-year repayment term, your monthly payment would be $305 and you’d pay $36,626 in total over the course of your repayment. The high interest rate would cause you to pay over $11,000 in interest charges.
If you refinanced and qualified for a 10-year loan at 4% interest, your monthly payment would drop to $258 — a savings of $46 — and you’d repay just $31,103 in total. By refinancing your loans, you’d save over $5,500 in interest charges.
| Parent PLUS Loan | Refinanced Loan | |
| Starting Balance | $25,600 | $25,600 |
| Loan Term | $25,600 | 10 Years |
| Interest Rate | 7.6% | 4% |
| Monthly Payment | $305 | $259 |
| Total Interest | $11,026 | $5,503 |
| Total Repaid | $36,626 | $31,103 |
| Savings: $5,523 |
If you’re wondering, “Should I refinance Parent PLUS Loans?” — keep in mind that you’ll lose federal benefits like access to IDR plans and eligibility for loan forgiveness. If you aren’t eligible for those programs, there isn’t a downside to refinancing, but make sure you weigh the pros and cons carefully before submitting a loan application.
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How to refinance Parent PLUS Loans
If you decide to refinance Parent PLUS Loans, get rate quotes from multiple lenders. Rates can vary widely from lender to lender, so it’s important to comparison shop so you get the best terms.
You can use Purefy’s Compare Rates tool to get quotes from multiple top refinancing lenders that work with parent borrowers, without affecting your credit score.
Once you find loan terms that work for you, you can complete the full application. At that time, the lender will perform a hard credit inquiry, which can impact your credit.
When you apply, the lender will prompt you to enter your personal information, including your Social Security number and your income. You also need to provide your current loan balance and lender information.
The entire application process only takes about 15 minutes to complete. By taking just a few minutes to refinance your loans, you can reduce your monthly payments and make your loans more manageable.
