Are you looking to refinance a parent PLUS loan to take advantage of record-low interest rates right now? This article will explore the benefits and drawbacks of refinancing parent PLUS loans and provide a quick overview of refinancing lenders.
For clarity, parent PLUS loans are taken out by parents of dependent students to pay for education costs not covered by the student’s financial aid package. The U.S. Department of Education allows eligible parents to borrow up to the cost of attendance minus any other financial assistance the child receives.
Parent PLUS Loans, like all federal student loans, have fixed interest rates. However, they’re also unsubsidized. This means interest accrues while the student is enrolled in school.
Furthermore, parent PLUS loans have no “grace period.” A grace period is a time when the borrower doesn’t have to make payments. With no grace period, parent borrowers need to start loan payments as soon as the money is disbursed. However, parent borrowers needing to delay payments can request it through their loan servicer.
These conditions may make it difficult for borrowers to pay off parent PLUS loans. This is where refinancing can make the loan repayment process more manageable. For parents with good to excellent credit history and stable employment, refinancing could be a way to get lower interest rates. Alternatively, they can also refinance the debt in their child’s name and transfer responsibility for the debt.
Should You Refinance Parent PLUS Loans?
You should weigh your decision to refinance parent PLUS loans based on your needs and financial situation. Student loan refinancing may be right for you if you can qualify for an interest rate lower than the federal rate. Private lenders generally base interest rates for borrowers on income and credit score — you’ll need a credit score that’s at least in the high 600s.
However, refinancing also means losing access to federal student loan benefits, such as deferment or forbearance, income-driven repayment plans, and student loan forgiveness programs like Public Service Loan Forgiveness (PSLF). If you qualify for or need these programs, refinancing may not be the best solution for you.
Can Parent PLUS Loans Be Refinanced in the Student’s Name?
Yes, parent PLUS loans can be transferred to the child’s name through refinancing. The number of private student loan lenders offering this service is increasing. Below are quick overviews on the two parent PLUS refinancing processes: in the parent’s name or in the student’s name.
Refinancing in the Parent’s Name
If you are a parent borrower and choose to refinance with a private lender, you may be able to get a lower interest rate that could save you a lot of money on interest payments. Many lenders qualify you for lower interest rates based on your income, credit score, and debt-to-income ratio. You can generally pre-qualify with a soft credit pull to estimate your rate.
Another benefit of refinancing is combining multiple loans into one easy-to-manage loan with one monthly payment. You can also choose to shorten or lengthen the terms of the loan.
Agreeing to a shorter loan term will probably increase your monthly payments, but you’ll pay off the loan faster. Meanwhile, a longer repayment term can lower your monthly bill, although you’ll pay a bigger loan amount overall due to interest. However, it may be worth it if you have other financial responsibilities right now.
Refinancing in the Student’s Name
The process and eligibility requirements for your child to take on a parent PLUS loan in their name are the same as if they’re refinancing their own student loan debts. They’ll need proof of income, good credit, and a strong credit history (or a co-signer who meets those requirements).
Refinancing parent PLUS loans in your child’s name is a great way for them to take on the responsibility of paying for their education.
What Options Are Available for Parent PLUS Loans?
You have the option to refinance or consolidate. For student loans, refinancing refers to the process of taking out a new loan from a private lender to pay off old loans. When refinancing, you can combine federal and private student loans into a single loan. On the other hand, consolidation refers to combining federal student loans only through a Direct Consolidation Loan.
Federal Student Loan Consolidation
Compared to most private student loans, federal student loans come with lower interest rates, strong borrower protections, and other advantages. Consolidation may not lower your interest rate or lower what you’ll pay in tota,l but, for parent Plus loans, it’s the only way to access income-based repayment options like the Income-Contingent Repayment Plan (ICR Plan).
When you consolidate federal parent PLUS loans, they become a Direct Consolidation Loan. You’ll be given a new term from 10 to 30 years to repay, depending on your loan balance. Unlike private lenders, the federal government doesn’t provide the option for parents to transfer loans to their child’s name.
Private Lender Refinancing
Here’s a list of private lenders that offer parent PLUS loan refinancing to help narrow down your search.
Note: Interest rates mentioned below include a 0.25% autopay discount.
Earnest
Earnest is a lender that refinances both private and federal loans, doing the loan application process entirely online. When refinancing parent PLUS loans, Earnest also considers other factors, such as how much money you have in your bank accounts and the value of your investments. It’s an approach that helps borrowers with poor credit to qualify.
Minimum Credit Score: 650
Fixed Interest Rate: Starts at 2.98% APR
Variable Interest Rate: Starts at 1.99% APR
Repayment Terms: 5 to 20 years
Refinance in Child’s Name? No
CommonBond
CommonBond is a private lender founded in 2012. The company offers student and refinancing loans with fixed, variable, and hybrid rates. CommonBond does not charge origination fees or prepayment penalties for refinancing.
A hybrid loan encompasses a fixed rate for the first five years of the loan and a variable APR for the rest of the repayment term. CommonBond also stands out for offering a forbearance period of 24 months, which works out great for borrowers looking for repayment flexibility.
Minimum Credit Score: 680
Fixed Interest Rate: 2.59%–6.74% APR
Variable Interest Rate: 2.55%–6.86% APR
Hybrid Interest Rate: 2.98%–6.57% APR
Repayment Terms: 5-, 7-, 10-, 15-, or 20-year repayment terms
Refinance in Child’s Name? Yes
Laurel Road
Laurel Road offers refinancing for parent PLUS loans, as well as for undergraduate and graduate loans. They are known for refinancing medical and dental loans for students who are in residency. Laurel Road also processes refinancing for parent PLUS loans even if the student hasn’t graduated yet.
Minimum Credit Score: 700
Fixed Interest Rate: 2.80%–6.00% APR
Variable Interest Rate: 1.89%–5.90% APR
Repayment Terms: 5, 7, 10, 15, or 20 years
Refinance in Child’s Name? Yes
SoFi
SoFi is an online lender that refinances and consolidates PLUS loans and private education loans. Refinancing with SoFi comes with career planning, job search assistance, and entrepreneurship support. You can also check if you’ll qualify and what rate you’ll get without a hard credit check.
Minimum Credit Score: Not disclosed
Fixed Interest Rate: 2.99%–6.04% APR
Variable Interest Rate: 2.24%–5.59% APR
Repayment Terms: 5, 7, 10, 15, or 20 years
Refinance in Child’s Name? Yes
PenFed
PenFed is one of the country’s most stable financial institutions. They offer parent PLUS student loan refinance where you can consolidate parent PLUS loans with other types of federal Direct loans, including both subsidized and unsubsidized. The parent can assume federal loan debt in the child’s name or refinance parent PLUS loans in the student’s name.
Minimum Credit Score: 670
Fixed Interest Rate: 3.50%–5.15% APR
Variable Interest Rate: 3.03%–4.47% APR
Repayment Terms: 5, 8, 12, or 15 years
Refinance in Child’s Name? Yes
Learn More About Your Refinancing or Consolidation Options
If you have parent PLUS loans with high interest rates, refinancing offers you a way to secure lower interest rates, reduce your monthly payment, or transfer the loan to your child. When you transfer the obligation to your child, they’ll learn the value of paying for their own education and you can focus on other financial responsibilities or goals you may have.
Finding the best refinance lenders for your specific needs and circumstances doesn’t need to involve long hours of research. At CollegeFinance.com, we help you learn more about private lenders, explore your loan options, understand the application process, and more.
