Student loan debt can be crippling for college graduates, but it can be an absolute nightmare for parents who borrowed money on behalf of their student children.
Parents owe $89 billion in Parent PLUS Loans, and that’s not including money borrowed from private lenders. With retirement on the horizon and rising healthcare costs, parents may be looking for any solution possible to eliminate their student loans more quickly.
Refinancing Parent PLUS Loans or private loans can provide parents with several benefits, but there are also some potential downsides to consider. Here’s what you should know.
What does it mean to refinance Parent PLUS Loans or private loans?
Refinancing Parent PLUS Loans involves replacing one or more existing federal loans with a private student loan, and the process is the same for private student loans.
It’s important to note, however, that to refinance Parent PLUS Loans is not the same as Parent PLUS Loan Consolidation. With consolidation, you’re replacing a federal loan with another federal loan through the U.S. Department of Education.
If you’re thinking about private loan or Parent PLUS Loan refinance options, there are some potential drawbacks to consider.
For starters, refinancing federal loans with a private lender will cause you to lose access to certain benefits, such as the income-contingent repayment plan and loan forgiveness programs. You may also not get the same deferment and forbearance options that the government provides.
As a result, it’s essential to consider both the pros and cons of refinancing and consolidation before making a decision.
Why parents are looking into private and Parent PLUS Loan refinance options
Whether you’re looking to pay down your debt faster, get some relief on your monthly payments, or execute a private or Parent PLUS Loan transfer to your student child, here are some reasons you might want to consider refinancing.
Reduce your interest rate
If your credit score has improved since you first applied for parent loans, refinancing may help lower your rate. Or if you have federal loans, which all carry the same interest rate regardless of credit history, you may be able to qualify for a lower rate even if your credit hasn’t changed.
A lower interest rate will not only save you on total interest charges but can also lower your monthly payment.
That said, there’s no guarantee that you’ll get a lower interest rate. Private lenders will consider your credit score and history, income, other debts and more to determine what rate to offer you.
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Drop your monthly payment
If you’re having a hard time affording your monthly payment, refinancing to a longer repayment term could lower it enough to be affordable.
Just keep in mind that if you have federal loans, Parent PLUS Loan Consolidation can give you access to the income-contingent repayment plan, which reduces your payment based on your income. If your income is very low relative to your student debt balance, this may be a viable option.
It’s important to note that if you extend your repayment term, you will end up paying more in interest. So consider it only if you’re struggling to get by with your current payment.
Transfer Parent PLUS Loan to student
If you’re looking to have your child take over the debt you incurred on their behalf, it is possible to refinance Parent PLUS Loans or private loans into their name.
If you haven’t talked to your child about this possibility, consider it, especially if your student loan payments are making it difficult to save for retirement or other important goals. It may not make things easier on your student, but if time is running out for you, it may be necessary.
One potential obstacle is that your child’s credit will need to be in good enough shape to qualify for the new loan. If it’s not, you may be stuck with the debt until they’re eligible to take over.
If your student has debt, you could also transfer it to a new loan with your name on it instead of theirs. Before you commit, consider all the potential consequences of doing so.
Get better service
If you have federal loans, you didn’t get to choose the company that services your loan. Depending on your experience so far, a Parent PLUS Loan refinance could allow you to choose a lender that can provide better service while you pay down your debt.
If you have private student loans, you did get to choose who you’re working with. But if the level of service hasn’t met your expectations, moving the debt to a different lender could make a big difference.
Simplify your monthly payment
If you have more than one student loan from different lenders or servicers, making multiple payments every month can get complicated. The last thing you want is to accidentally miss a payment because you’re overwhelmed.
By refinancing your private or Parent PLUS Loans, you can combine all your monthly payments into one, making your repayment plan a little easier to manage.
Shop around to find the best refinance rates
If you’re thinking of refinancing Parent PLUS Loans or private student loans, avoid jumping on the first offer you see. The more lenders you compare, the better your chances will be of scoring favorable terms.
To help, Purefy’s rate comparison tool allows you to view rates and terms from multiple refinance lenders in one place. Simply share a little bit of information about yourself and your debt, and the tool will provide some rate quotes. You don’t even need to undergo a credit check.
As you compare lender offers, look at more than just the rates. Visit each lender’s website and read about potential benefits they offer to borrowers, such as interest rate discounts, deferment and forbearance options, unemployment protection and more. Taking a slightly higher interest rate may be worth it if certain features give you more peace of mind.