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Why 2023 Is a Great Time To Refinance Parent Plus Loans

Kat Tretina
why it's a great time to refinance parent PLUS loans
why it's a great time to refinance parent PLUS loans

More parents than ever are borrowing money to help their children pay for college. According to the Office of Federal Student Aid, there are approximately 3.7 million Parent PLUS loan borrowers as of the end of 2022. Altogether, they owe over $108.5 billion.

Since March 2020, Parent PLUS loans — as well as other qualifying federal student loans — have had their payments suspended and interest rates set to 0%. However, that will come to an end in 2023.

If you have outstanding parent student loans, refinancing could be a good idea before repayment begins. Here’s what you should know about completing a Parent PLUS loan refinance.

What are Parent PLUS loans?

Parent PLUS loans are a type of federal student loan issued under the Direct loan program. They are for parents of undergraduate students who want to borrow money to cover their children’s college education.

Although Parent PLUS loans are used to pay for a child’s education, the loans are issued in the parent’s name, and the parent is legally responsible for their repayment — not the child.

How do Parent PLUS loans differ from private parent loans?

If a parent wants to help their child pay for college, they can use Parent PLUS loans or private parent loans to borrow money. Parent PLUS loans differ from private loans in that they don’t have a minimum income requirement. Parent PLUS loans are also part of the federal Direct loan program and are eligible for benefits like forbearance or deferment.

The downsides of Parent PLUS loans

For parents looking for ways to help their children afford college, Parent PLUS loans can be appealing because there are no limits on how much you can borrow.

Unlike other federal student loans, which have annual and aggregate limits, there are no caps on how much you can borrow with Parent PLUS loans. You can borrow up to the total cost of attendance of your child’s school. And, if you have multiple children, you can borrow for each child.

Although the lack of a borrowing limit can be an attractive feature, Parent PLUS loans have some significant drawbacks:

1. They have high interest rates

Federal student loans are known to have low interest rates and more generous repayment terms than most private loans. But Parent PLUS loans are the exception. With a current rate of 7.54%, Parent PLUS loans have the highest interest rate of any federal loan. They also have a hefty disbursement fee of 4.228% that is deducted from the loan amount when it’s disbursed.

Considering that there are no caps on how much you can borrow with a Parent PLUS loan, you could be paying those high rates and fees on large loan amounts. Over time, you could end up paying thousands more in interest than you initially borrowed.

2. There is no built-in grace period

When you take out a Parent PLUS loan, it’s important to know that they don’t have built-in payment deferments or grace periods like other federal loans. By default, your loans enter repayment right after disbursement unless you opt to defer payments until after your child leaves school.

While you can defer your payments, interest will accrue while your child is in school. If you aren’t making payments, your balance can grow significantly.

3. They have fewer repayment options

Most federal student loans are eligible for income-driven repayment (IDR) plans. There are four options:

  • Income-Based Repayment (IBR)
  • Income-Contingent Repayment (ICR)
  • Pay As You Earn (PAYE)
  • Revised Pay As You Earn (REPAYE)

When you sign up for one of the four IDR plans, your monthly payments are calculated based on a longer loan term and a percentage of your discretionary income. Some borrowers qualify for payments as low as $5 or even $0 per month.

However, Parent PLUS loans are more restrictive. In their current state, Parent PLUS loans aren’t eligible for IDR plans.

There is a workaround; Parent PLUS borrowers can consolidate their loans with a Direct Consolidation Loan. Once that process is complete, the borrower can apply for an IDR plan.

However, consolidated Parent PLUS loans are only eligible for ICR; they aren’t eligible for the other three IDR plans.

While the other repayment plans base the payment on 10% to 15% of your discretionary income, ICR plans are more expensive. ICR bases its payments on 20% of your discretionary income, so your payments will be higher than if you qualified for the other plans.

4. Parents may not be eligible for loan forgiveness

In August 2022, President Biden announced a new program that would forgive up to $10,000 in student loan debt per qualifying federal loan borrower. 

Although that program is being challenged in the courts, its impact on Parent PLUS loans may be minimal. The average balance of Parent PLUS borrowers was $29,324 as of the end of 2022. Even if Parent PLUS borrowers qualified for the loan forgiveness program, it wouldn’t eliminate their total balance.

Plus, the loan forgiveness program isn’t available to everyone; there are income limits. Only individuals that make under $125,000 ($250,000 for couples that are married and file joint tax returns) qualify. Families with higher incomes may be over that limit, so they wouldn’t qualify for any loan forgiveness.

Since Parent PLUS loans don’t have borrowing caps, parent borrowers can have six figures of debt. Even with higher incomes, their payments can be quite high and strain their budgets.

5. The federal payment freeze is coming to an end

The federal payment freeze has been in place since March 2020. Since then, federal student loan payments — including those for Parent PLUS loan borrowers — have been paused, and interest hasn’t been accruing.

The federal payment freeze has been extended multiple times, but it looks like it will finally come to an end in 2023. When that happens, payments will restart and interest will begin accruing again. For families that have gotten used to not having to make payments, the Parent PLUS payments can be a harsh surprise.

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Refinancing Parent PLUS loans

If you have outstanding Parent PLUS loans, refinancing your debt could be a smart idea. When you refinance, you work with a private lender to take out a new loan for the amount of your total student loan debt. Depending on your credit, income, and other debt, you could qualify for a loan with better terms than you have now. You could get a lower interest rate or a smaller monthly payment through refinancing.

Benefits of a Parent PLUS loan refinance

Refinancing federal student loans may not be the right move for everyone. When you refinance federal loans, they become private debt, so they’re no longer eligible for federal loan benefits like federal forbearance or IDR plans.

But for Parent PLUS loan borrowers, there are several benefits to student loan refinancing that may offset those drawbacks:

You could save a substantial amount of money

Parent PLUS loans have high interest rates. With a strong credit score and steady income, you could potentially qualify for a new loan with a lower rate than you have on your existing loans.

Securing a lower interest rate could allow you to save thousands. For example, let’s say you have $30,000 in Parent PLUS Loans at 7.54% interest and the default 10-year repayment plan. If you only made the minimum payments of $357 per month, you’d repay a total of $42,808; interest charges would add over $12,800 to your loan cost.

If you refinanced, you could qualify for a 10-year fixed-rate loan at 5.00% interest. Your monthly payment would drop to $318, but you’d repay a total of just $38,184 over the life of your loan. By refinancing your Parent PLUS loans, you’d save over $4,600.

See How Much You Can Save

Parent PLUS Loan Refinance Calculator

View Details

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Parent PLUS Loan rates are often the highest of any federal student loan. Calculate your savings with lower rate and see the impact of paying off PLUS loans faster.

Step 1: Enter Current Loan Information

Loan Balance
Your remaining student loan debt to be repaid.
Interest Rate
The amount that the lender charges in interest, expressed as a percentage.
Current Monthly Payment
The total amount of your monthly student loan bill.
Add Multiple Loans to Calculate

Step 2: Enter New Loan Information

New Interest Rate
Your updated interest rate after refinancing student loans.
Term
The length of time you have to repay your student loan debt in full.

Add Multiple Loans

Insert additional loan

Step 3: See How Much You Can Save

$15,310

Lifetime Interest
Savings

$1,018

New Monthly
Payment

$128

Monthly
Savings

Current Loan New Loan Savings
Rate 6.7% 4.2% 2.5%
Lifetime Interest $37,520 $22,210 $15,310
Monthly Payment $1,146 $1,018 $128

Like what you see? Check your actual prequalified rates from the industry’s top lenders in just 2 minutes or less.

You could reduce your payments

The default repayment plan for Parent PLUS loans is 10 years. If your payment is too high with the standard repayment plan, one of the benefits of a Parent PLUS Loan refinance is the ability to choose a new loan term. Depending on the lender you choose, you could select a term as long as 20 years.

You’ll likely pay more in interest with a longer term, but you may decide that it’s worth it to have more breathing room in your budget.

And parent refinance lenders don’t charge prepayment penalties, so you can make extra payments and pay off your loan early if your finances improve without having to pay additional fees.

You can transfer the loans to your child

With Parent PLUS loans, the parent borrower is solely responsible for the loan’s repayment. The child has no legal obligation to repay the loan, and there’s no way to transfer a Parent PLUS loan to a child as a federal loan.

However, you can transfer a Parent PLUS loan to a child if you refinance it. If the child agrees to refinance in their own name and meets the lender’s eligibility requirements, the child takes over the loan. The parent borrower is no longer on the loan, doesn’t have to make payments, and the loan will no longer impact their credit.

Refinancing Parent PLUS loans

With payments set to restart on federal loans in 2023, it may be a good idea to refinance your loans beforehand. Currently, fixed rates on parent loan refinancing are as low as 3.94%, but there’s no guarantee of rates staying so low. Locking in a competitive rate can ensure you save more money over the life of your repayment term.

To start the refinancing process, use Purefy’s rate comparison tool to explore options from top lenders.

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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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2 Earnest Rate Disclosure:


Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.64% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 4.64% 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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