Looking for a simple and effective strategy to pay off those high interest Parent PLUS student loans you took out to help your child afford college tuition?
Without a doubt, consider refinancing — it’s a way to feel unhindered by that high-interest debt and get rid of your loans easily and quickly.
You, like many parents, may have taken on debt through a Parent PLUS student loan to help your dependent undergraduate student. It’s understandable — college tuition has skyrocketed in the last few years and typically savings just hasn’t been enough.
But now that your child has graduated and moved into a new career, it’s time to consider your options to pay off your Parent PLUS loans quickly and easily. Your resources can and should be redirected to building retirement wealth, obtaining a new mortgage, or financing another child’s education.
Why do Parent PLUS Loans have such high interest?
As part of the federal direct loan program of the U.S. Department of Education, Parent PLUS Loans were designed to give parents a way to borrow tuition money. These specialized loans help cover the child’s college costs for attendance, less any money from scholarships or other financial assistance that was received.
Interest rates are set by Congress each year and apply uniformly to each borrower regardless of credit score or creditworthiness. The problem is that these debt instruments come with high interest costs that add up over time.
Benefits of paying off Parent PLUS Loans early
Refinancing or paying off a Parent PLUS student loan early brings numerous benefits. Freeing up additional income may be beneficial when boosting your retirement savings plan or making life choices that require capital. You may have multiple children that are bound for college and need to shift your resources to helping them.
You may also want to consider transferring or refinancing your Parent PLUS loans into your child’s name, giving them an opportunity to build a credit portfolio and take responsibility for their education.
Why you should refinance Parent PLUS Loans
Unless you have experienced a cash windfall, you probably need to look at how to restructure the debt to be more manageable. Flexibility is key and refinancing your Parent PLUS Loans allows you to proactively choose the specifics of the plan you want.
Consider these benefits when asking yourself “Should I refinance Parent PLUS loans?”:
- Save money with a lower interest rate — If you have solid credit and a strong income, you may qualify for a much lower interest rate. The rates charged are determined by lenders and generally based on the Federal Reserve lending rate which is currently at historic lows. This means that if you took out your loans several years ago, you stand to recognize substantial monthly savings in reduced interest payments.
- Pay off high interest debt faster with a shorter repayment term — When refinancing, you have your choice of lenders who will offer rates with flexible terms. You can opt for a shorter repayment term or choose to make additional payments with no prepayment penalty.
- Combine all loans into one easy payment — Many parents have several loans open at one time. Both federal and private student loans can be consolidated into one loan that has one new interest rate. Now monthly payments can be made easily to one lender on a single date.
- Option to transfer Parent PLUS debt into your child’s name — Now that your child has graduated and is embarking on a new career, it may be time to transfer the Parent PLUS student loan into their name.
By refinancing, your child can take responsibility for the loan based on their creditworthiness and build their credit history. This option allows your child to position themselves for future major purchases like a mortgage or auto loan.
Although there are many positives to refinancing federal Parent PLUS Loans into a new private loan, there are a few drawbacks to consider:
- You are no longer eligible for Public Service Loan Forgiveness.
- You lose access to alternative payment plans available with federal student loans such as Extended Repayment Plans, Graduated Repayment Plans.
- If you opt for a longer repayment period on your refinanced loan, you may end up paying additional interest with the longer term.
These drawbacks, while significant, may be worth the loss to obtain the benefits of refinancing to a lower rate or flexible term choices.
How to compare Parent PLUS Loan refinance rates
So you’ve made the decision but want to know more about how to refinance Parent PLUS loans.
Parent PLUS student loans typically carry the highest interest rates for any federal student loan program. The overall balance can quickly become unmanageable, making refinancing a crucial financial decision.
To begin, consider Purefy’s rate comparison tool. It allows you to complete one simple form that presents you with your prequalified offers from multiple vendors in an easy to compare chart.
At Purefy, we work diligently to partner with lenders offering outstanding reputations and loan programs that carry no origination fees or prepayment penalties. Some, such as SoFi and PenFed Credit Union, also allow you to transfer federal and private student loans into a consolidated loan in the qualifying child’s name.
Compare lenders, interest rates, and loan terms using our rate comparison tool. The process is simple, easy, and only requires a few minutes of your time.