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FAQs About Parent PLUS Loan Refinance

by Allison Wignall on July 27 2021

Taking out a Parent PLUS loan is one of many ways to help your student pay for their college education. However, as with all loans, they must be repaid. In order to better manage loan payments and even save some money, many parents consider refinancing their Parent PLUS loans. It’s a great option, but one that comes with many questions. Let’s break down some of the most common questions about Parent PLUS loan refinance.

What does a Parent PLUS loan refinance involve?

A Parent PLUS loan refinance involves exchanging your Parent PLUS loan for a new loan with new terms.

Can I refinance my Parent PLUS loan with the federal government?

No, a Parent PLUS loan is a type of federal student loan but the federal government doesn’t offer refinancing. You’ll have to refinance your Parent PLUS loan with a private lender.

Will my new loan have the same protections as the original loan?

No, unfortunately, it won’t. As a federal loan, your original Parent PLUS loan comes with certain benefits such as income-based repayment plans and forgiveness programs. However, when you refinance with a private lender, your federal loan gets converted to a private loan. As a private loan, it will lose all of the protections associated with the original loan.

Why should I consider refinancing my Parent PLUS loan?

There are several reasons why you may want to refinance your Parent PLUS loan. For one thing, these loans have some of the highest interest rates of all student loans. If your financials are strong, you may qualify for a lower rate of interest. This could be as low at half of what you’re paying on the Parent PLUS loan. Refinancing with a lower interest rate could save you a sizeable amount in interest over the loan term. Refinancing also allows you to transfer your Parent PLUS loan to your child.

Is it easy to refinance my Parent PLUS Loan in my child’s name?

Refinancing is the only way you can transfer a Parent PLUS loan to your child’s name. However, this is only possible if your child meets the lender’s eligibility criteria for refinancing. Refinancing requirements typically include having a degree, a good credit score, steady income, and low debt-to-income ratio. Lenders will not let you refinance in your child’s name if they don’t meet their minimum refinancing requirements. The only option then is for your child to refinance with a cosigner. In this case, loan approval will be based on the cosigner’s credentials.

Should I refinance my Parent PLUS loan in my child’s name?

Both you and your child will benefit from this arrangement. You will clear the debt from your name, making it easier for you to get a low-cost mortgage or another loan. Your child will benefit from the credit-building opportunity. New graduates are often at a disadvantage because of their thin credit history. This makes it more difficult for them to get a credit card or qualify for low-cost loans. Timely loan repayments is the fastest way for your child to build their credit history and improve their score.

How is the interest rate set when refinancing a Parent PLUS loan?

If you’re refinancing in your own name, the lender will base the rate on your credit score. If you’re refinancing in your child’s name, the lender will base the rate on your child’s credit score. In either case, a higher credit score will qualify the loan holder for a lower rate of interest.

What are the options available with a Parent PLUS loan refinance?

When refinancing, your or your child will be able to choose the term of the loan. A longer loan term will lower the monthly repayments but will cost you more in interest. A shorter loan term will increase the monthly repayments but will save you a lot by way of interest. It will also help clear the loan faster.

What are the protections I’ll lose if I refinance a Parent PLUS loan?

With the original Parent PLUS loan, you have access to income-based repayment plans. These base your monthly repayments to your monthly income. You’ll also have access to forgiveness programs if you meet the requirements. Federal loans also offer deferment and forbearance options that can help you out of a financial crisis. You’ll lose all of these protections if you choose to refinance your Parent PLUS loan.

Is it worth refinancing if it means losing access to federal loan protections?

This depends on your financial circumstances. If you see a drop in your income, an income-based repayment plan could come in very useful. So would the deferment and forbearance options. In this case, it may be better to hold on to your federal loan. You may also want to hold off on refinancing if you’re pursuing any forgiveness program. If you don’t see yourself pursuing any of the federal loan protections, it’s best to refinance your Parent PLUS loan. Refinancing is especially advisable if you or your child qualifies for a lower interest rate. The savings in accrued interest will be substantial over the loan term.

When should I consider a Parent PLUS loan refinance?

You should consider a Parent PLUS loan refinance if you:

    • Have good credit and a stable income, which qualifies you for a lower rate of interest.
    • Want to increase your monthly repayments to clear the debt faster.
    • Need to lower your monthly repayments to free up cash for everyday expenses.
    • Are sure you won’t need the alternative payment plans associated with the original loan.
    • Aren’t pursuing any federal student loan forgiveness program.

When should I NOT consider a Parent PLUS loan refinance?

You should not consider a Parent PLUS loan refinance if you:

    • Are expecting a drop in income in the near future
    • Don’t qualify for a lower interest rate
    • Had a recent credit score drop.
    • Plan on pursuing either a Public Service Loan Forgiveness or Teacher Loan Forgiveness

 

We hoped you enjoyed this article! Remember, you can compare your personalized rates with our lending partners and potentially lower your monthly student loan payments and save money.

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