Pros and Cons of Refinancing Parent PLUS Loans

Kathryn Morstad

When your kids were in school, you may have taken out one or more Parent PLUS Loans through the Federal Direct Loan Program. These loans are offered to parents of college students to fund their child’s education and historically have carried an interest rate between 5.3% and 7.9%.

Compared to interest rates today, that is extremely high. Now is a great time to look into refinancing your Parent PLUS Loans where you can save tons of money with a lower rate and better terms.

With interest rates lower than ever, you may be interested in researching the refinancing process as a smart option to restructure your current debt. There’s no time like now to take stock of your financial obligations and look to streamline them where possible so that you are ready for the next big opportunity, e.g., investing, retirement, building a dream home.

If you would like to learn more about how to refinance Parent PLUS Loans, we will walk you through the Pros and Cons to give you a better idea of whether refinancing is the best option.

What is Parent PLUS Loan refinancing?

Like refinancing a mortgage, student loan refinancing is an opportunity to take a single loan or a bundle of loans and package them into a new loan with a lower interest rate. When you ask yourself how to pay off Parent PLUS Loans more quickly, refinancing could be the best answer.

When diving into refinancing Parent PLUS Loans, you are asking a private lender to assume the debt while offering you new terms for interest rates and/or payment options. Typically, people pursue this type of option when they can substantially benefit their overall financial goals.

Lenders like this product because it allows them to make money by choosing qualified borrowers that have a good history of paying their debt and let’s face facts, lenders are in the business of lending money. Whether they service the loan for its entire life or they package and sell it to another lender (a practice common in the home mortgage industry), refinance lenders want your business if you meet their lending criteria.

Refinancing Parent PLUS Loans is one of the easiest ways to save money!

If you’re looking to save on high-interest Parent PLUS Loans, refinancing can be the fastest and simplest strategy to secure a lower rate.

Takes 2 minutes • No impact on credit

Why many parents are refinancing their student loans

You probably are seeing refinancing mentioned everywhere these days. It seems you can’t turn on your device lately without some mention of student loans and how to save money. It makes sense, there are over 40 million people with student loan debt totaling more than $1.64 trillion. That averages out to over $29K per person.

In reality, you may be one of the huge numbers of parents (3.6 million) that have a collective debt of over $89 billion in Parent PLUS Loans. And that’s just the federal loans amount; it doesn’t include funds borrowed from private lenders.

With an average Parent PLUS Loan balance of $25,600, many parents are having to postpone retirement and continue to work to pay off their child’s student loan debt. When they had planned to be setting sights on other financial goals, they are finding themselves working to manage Parent PLUS Loan debt.

What types of student loans can be refinanced?

If you have been asking yourself, “Can I refinance parent plus loans?”, the answer is yes. All federal and private student loans are eligible for refinancing as long as you can find a lender interested in working with you. That means you need to be a good lending risk with great credit and solid income.

However, keep in mind that a Parent PLUS Loan is a federal loan. Once you refinance to a private loan, you may lose some of your protections/options that come with a federal student loan, including repayment and consolidation options that are offered within the Direct Loan Program for Parent PLUS Loan borrowers.

When getting into the specifics of why so many parents are pursuing refinancing as an option for their Parent PLUS Loans, it’s important to look at what you can gain, but also what you stand to lose. So what are the benefits and drawbacks of going through the refinance process? Let’s take a look!

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Pros of refinancing Parent PLUS Loans

Save money on interest — With good credit and a strong income, you can lower your interest rate and save money over the entire life of the loan. And right now is a great time to see what your options are for a lower interest rate loan.

We are experiencing the lowest interest rates in history. There has never been a better opportunity to save money on your monthly payments. Federal money policy has dropped their overnight lending rates to all-time lows of 0.0% to 0.25% with no plans to increase rates on the horizon. That means with good credit you can find a great deal with a reputable lender and restructure the debt in your favor.

As an example, if your current loan balance is $35,000 and you have an interest rate of 7.9% with a repayment term of 10 years, you will pay $422.80 per month and a total of $15,735.93 in interest over the life of the loan.

However, if you refinance that same loan with a private lender at 3.2% interest for a 10-year loan, your monthly payment will change to $341.22 per month with a total of $5,944.41 in interest over the life of the loan. You end up recognizing a savings of $9,791.52 that can be better used to put towards your retirement or investment portfolio.

Score a loan consolidation — Throughout your child’s education, you may have taken out several loans to cover their education expenses. Or you might have multiple children that attended college and several Parent PLUS Loans. In either case, you can consolidate them all into one loan package through refinancing with one easy payment and a single due date.

Pay off debt sooner — If you are looking to make major financial moves in the future, you may want to repay your Parent PLUS Loans more quickly. By refinancing, you can shorten your loan terms and pay off your loans in record time. In fact, with today’s low-interest rate, you may be able to shorten your terms and still have a lower payment.

Get a lower monthly payment — On the other hand, you may want to grab a lower monthly payment now. All you have to do is qualify for a refinance and extend the terms. Some lenders will extend the length of the term to as long as 20 years which can significantly lower your monthly obligation.

But remember, unless your interest rate is significantly lower, this may increase the amount of interest you pay over the life of your loan. If that’s not a concern, this can be a great option to put a little more money in your pocket at the end of the month.

Move the debt into your child’s name — It may be time to move your Parent PLUS Loan into your child’s name. If they have graduated and gotten a good job, now could be a great time for them to assume responsibility for loan payback.

With a refinance, you could even co-sign for the new loan in your child’s name and allow them to build their credit history. You would still be financially liable, but you wouldn’t be on the hook for the monthly payment.

Some private lenders even offer a co-signer release that can release you from the financial responsibility of the loan after usually 12 months of solid payment history from your child.

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Cons of refinancing Parent PLUS Loans

Refinancing a federal Parent PLUS Loan can bring with it some negatives that require careful consideration. If any of these drawbacks would create a burden, then refinancing may not be a good solution for you right now.

You are no longer eligible for the Public Service Loan Forgiveness Program — If you have Parent PLUS Loans, you are eligible for the Public Service Loan Forgiveness Program where if you work for a qualifying employer (typically government or non-profit), your loan is forgiven after you make 120 monthly payments.

You lose eligibility in federal repayment programs — When you refinance with a private lender, you will lose eligibility for alternative repayment plans that you may have taken advantage of (or hope to in the future) as a participant in the Federal Direct Loan Program. These plans include:

  • Graduated Repayment Plan — you can apply with the Department of Education to have payments start out small and gradually increase every two years until the loan is paid off at 10 years.

  • Extended Repayment Plan — with a federal loan, you can apply for an extended repayment plan where you can extend payments to 25 years from 10 years. This will lower your monthly payment, but you will end up paying more in interest over the life of the loan.

  • Direct Consolidation Loan — federal loans will allow you to do a direct consolidation of multiple federal student loans into one direct loan. This is especially helpful if you have multiple loans with different due dates and payment amounts. With a direct consolidation, you are also eligible for an income-contingent repayment plan that will cap your payment at a percentage of your income and extend your repayment period.

If you opt for a longer repayment term on your refinanced loan, you could end up paying more for the loan. Some lenders will allow you to refinance your Parent PLUS Loans for up to 20 years (doubling the federal limit of 10 years), which would allow you some breathing room for your budget, but long-term, you could end up paying a lot more in interest (which is why this is considered both a pro and a con – it will depend on your specific situation).

Who is eligible for Parent PLUS Loan refinancing?

If you are responsible for a Parent PLUS Student Loan, then you are eligible to refinance that loan as long as you meet the criteria of your private lender. For people that meet those requirements, lenders are eager to find a loan package that works and anticipate parents will often have good, long-established credit with plenty of income.

At a minimum, you need to meet these personal financial criteria to obtain a Parent PLUS Loan refinance:

  • Credit Score — Your credit score (and your credit report) is your business calling card. It tells lenders a lot about you and whether they want to do business with you. Your credit score tells lenders about your financial character – if you pay your bills on time, effectively manage your available credit, and make good on your commitments. Your credit report also lets lenders know if you have ever filed bankruptcy or had liens placed on your property.

This information is very important when deciding to loan you money in the tens of thousands. Private lenders want to make sure you are a good credit risk and that there is a better than average chance of having their investment repaid.

  • Income — Whether you bring in income through your business, job, or investments, private lenders are keen to know that you have enough income each month to keep your financial commitments. They also want to ensure that your streams of income look likely to continue, e.g., longevity at a job, historical financial information, like a profit & loss statement for a self-employed business, or strong returns on investment strategies.

  • Debt-to-Income Ratio — The best guide to whether you’re over-extended is your debt-to-income ratio (DTI). This percentage (under 40% is preferable) compares your total monthly income by the total amount of your debt payments for things like a home mortgage, car, etc. If that amount is above 40%, private lenders see that as a negative factor in their decision to offer you a refinance product.

Should I refinance Parent PLUS Loans?

This is a great time to consider refinancing Parent PLUS Loans.

The Federal Reserve has recently provided guidance that their overnight lending rate (the rate that defines the prime rate from which all lenders base their interest rate offers) was at 0.0 – 0.25% and would remain there for an undetermined period of time or until the economy recovered post-pandemic.

With that economic policy well-entrenched now, lenders are offering refinancing rates far below where they normally are for Parent PLUS Loans – some as low as 1.99%. Or said another way, they are eager for your business.

As the consumer, this puts you in a position to negotiate the most desirable terms in what is possibly the most borrower-positive environment ever. So, if you have good credit and strong income, it’s at least worth exploring what you can qualify for in terms of interest rates and terms.

When to refinance Parent PLUS Loans

Once you have answered the question, “Can I refinance Parent PLUS Loans?”, it’s time to decide when to pull the trigger.

As we have discussed previously, the loan landscape has never been more inviting. But you may also be considering the possibility of a government-based forgiveness plan as promised by the current administration and Democrats in Congress.

While this may come to pass in some form, whether it would be focused primarily on undergraduates with outstanding loans or would include Parent PLUS Loans or higher income graduates.

Compare Parent PLUS Loan refinancing rates

One of the hardest parts of refinancing is researching different lenders and compiling their various products and offerings for an in-depth comparison. This means visiting multiple websites and gathering interest rates, fixed vs variable options, lending terms, special offers, fees and penalties, etc.

Once you have that all put together, then you have to make sense out of it. That can be an overwhelming task if you aren’t familiar with the process or the lingo.

At Purefy, we have developed a Rate Comparison Tool that takes all of the guesswork (and legwork) out of applying for a refinanced Parent PLUS Loan. In fact, we have been given five stars for our comparison engine and won the Best of Awards from NerdWallet in 2021 for our award-winning process.

From start to finish, our process is easy and straightforward. You fill out some basic personal information like your loan balance(s) and current income and our state-of-the-art rate tool will present you with real, pre-qualified options from our pool of industry-leading private lenders.

In 15 seconds or less, you will see offers that you qualify for presented in a sortable chart. From there you can make comparisons and select the lender’s package that best suits your needs and financial goals.

Purefy never charges a fee and is 100% secure using industry-leading encryption technology.

How to apply for a Parent PLUS Loan refinance

Once you have your preferred lender selected, you will be taken to their website to complete a full application and receive a final lender offer with the exact terms and interest rates for your new loan package. And the best news, none of our lenders charge application fees or origination fees and none of them have pre-payment penalties attached to their Parent PLUS refinance loans.

With your final approval, your existing loan will be paid off and your new loan will begin. As a reminder — be sure to continue to pay your existing loan until you receive official word that it has been paid in full. At that point, your new loan will be in full effect.

It sounds easy, but…

We understand that applying for a loan can feel daunting. There’s new language, changing terms, and confusing implications that will affect your life into the future. You want to make a good decision, but it can feel overwhelming!

Don’t worry – Purefy offers a Free Student Loan Refinance Consultation with our award-winning team of experienced, knowledgeable student loan advisors. They can help you with everything from your explaining your comparison results to assisting you with your lender application process. They can also answer any and all questions that you may have about refinancing Parent PLUS Loans.

In Summary

Refinancing Parent PLUS Loans are typically a great idea for parents who have high-interest loans and would like to save money while getting rid of their debt. It’s important to look at the possibilities, like lower interest rates, transferring the loan debt to a child, getting smaller payments by stretching out the repayment terms or paying off the loan faster.

With Purefy, you have a simple, fast, and free way to compare interest rates and loan terms on some of the leading private student loan lenders in the business. You also have the support of Purefy’s award-winning student loan experts where you can set up a free refinance consultation to get all of your questions answered.

When it comes to refinancing Parent PLUS Loans, it should be a straightforward process with no hidden fees or agenda. We believe we have created a marketplace where you can present your loans, along with your credit history and ability to repay. Then our industry-leading lending professionals can bid on your business offering you their best interest rates and loan terms.

From there, you can be fully supported by our student loan experts to decide which loan package works best for you and your financial goals for the future. And it’s all free and takes less than 15 minutes!

Now is a great time to check out what our best lenders have to offer. Start today by filling out our Comparison Rate Tool and find the best loan available to you.

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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 01/01/2023. 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.

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Fixed rates range from 4.49% APR to 8.99% APR with a 0.25% autopay discount. Variable rates from 5.09% 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.

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Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.72% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 4.39% APR to 9.19% 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.

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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 6.94% to 11.58% 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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