If your parents helped you pay for your bachelor’s degree by taking out a Parent PLUS loan, then you know that your parent is solely responsible for repaying it. Unfortunately, they can’t transfer it to you once you’ve graduated and found a job.
But that doesn’t mean that they have to pay high interest rates and monthly payments. If you or your parents are looking find a lower rate and reduce the total amount paid over the life of the loan, refinancing those loans may be the best option for you. Keep reading to learn more about what refinancing is, how the loan programs work, the pros and cons of refinancing loans, and for our list of the top five lenders.
Refinancing Parent PLUS Loans
Federal Parent PLUS Loans are federal student loans that graduate students or parents of undergraduate students can borrow for college or career school. Parent PLUS loans refer particularly to the loans borrowed by parents on behalf of their dependent child for their education. That makes the parent the borrower and the U.S. Department of Education the lender.
Refinancing Parent PLUS loans come with some noteworthy benefits, although they can be costly. When you refinance your Parent PLUS loans, you’re opting to obtain a new student loan with a much lower interest rate. That loan is used to pay off your existing loan, resulting in a new loan with a lower monthly cost and interest.
However, you are now in the hands of a private lender. That means you’re giving up any federal protection in terms of deferment, forbearance, consolidation possibilities, and the various income-based repayment options including an income-driven repayment plan.
Should You Refinance Your Parent PLUS Loans?
The purpose of refinancing your student loans is to lower the monthly cost while also paying them down quicker. Deciding whether you should refinance your Parent PLUS loans comes down to a few different things.
If you’re okay with giving up your federal loan benefits and you have a credit score in the high 600’s—or higher, then refinancing may be a good option. As long as you no longer need financial assistance and can consistently make your new loan payments on time, you’ll be reaping the benefits of refinancing.
Alternatively, if you need an income-driven or income-contingent repayment plan, qualify for Public Service Loan Forgiveness (or other forgiveness programs), or need other federal loan aid, then refinancing isn’t your best option. In fact, it could work against you, especially if the borrower of the loan passes away or finds themselves unable to make the payments.
Ultimately, you have to assess your financial situation, current job situation, and your needs before you decide to turn your federal student loans into private loans.
How to Refinance Your Parent PLUS Loans
If you decide that refinancing your Parent PLUS loans is the way to go, there are two ways to do it: by refinancing them in your name or by refinancing them in your child’s name.
Before you decide anything, however, you want to calculate how much you’ll save by refinancing, compare all the refinance lenders out there, and then apply to the one that’s best suited for you or your child. Once you apply, the lender will do a hard credit check before finalizing your rates—but not to worry, most lenders will allow you to pre-qualify by doing a soft credit check so there won’t be any surprises.
Now, onto your two refinancing options:
Refinance Them in Your Name
Refinancing Parent Plus Loans in your name is as easy as the above steps, keeping the loan in your name. Aside from checking your potential rates, you want to make sure that you meet the eligibility requirements for the company of your choosing.
The private lenders will evaluate several factors, including your credit score, employment status and job type, income, monthly cash flow, any other debt obligations you may have, and your debt-to-income ratio.
Refinance Them in Your Child’s Name
There is no process to transfer federal loans in your name to your child, which is where refinancing comes in handy. If you decide to make your child the sole borrower, or in the event where you don’t qualify for student loan refinancing, this is your next best option.
The process works the same—the private lender will evaluate the child graduate’s general financial picture. They’ll take at a look at their major and minor, job status, whether they have good credit and so on. More often than not, students develop a decent credit history, and as graduates, they become steadily employed thanks to those education loans! This puts them in a better financial position to obtain better interest rates.
What About Consolidation?
Federal student loan consolidation differs from Parent PLUS loan refinancing. Getting a consolidation loan won’t lower anyone’s interest rate, and you may not qualify for consolidation if on or more of your current loans has a variable rate rather than a fixed rate.
If you have fixed rates and you’re looking to enter an income-driven repayment program or qualify for loan forgiveness, then consolidation may be right for you. With an income-driven repayment plan on Parent PLUS loans, your payments are capped at 20 percent of your income or a fixed monthly amount on a 12-year term.
To qualify for Parent PLUS loan forgiveness, you’re required to make 120 on-time payments while working for the government, a 501(c)(3) nonprofit organization, or another qualifying nonprofit organization. This can be done—and should be done—on an income-driven repayment plan.
Remember, this is a personal decision, so you have to do what’s best for you. it’s important to weigh your options before deciding whether or not to refinance or consolidate your Parent PLUS loans.
Who Are the Top 5 Lenders Offering Parent PLUS Refinancing?
To help you on your quest for the best lenders offering Parent PLUS loan refinancings, we’ve narrowed down a list presenting you with our top five lenders. Keep in mind that these are not one-fits-all options, and you’ll want to weigh the pros and cons with each before you sign up for a private student loan.
For example, not all lenders will allow you to transfer your parent loans into your child’s name. All their rates will vary, and not all of them will allow you to view your potential rates or let you know if you pre-qualify.
Now without further adieu, here are our top 5 lender picks
Earnest is a great lender that offers Parent PLUS loan refinancing. However, unless you sign up for autopay, you’ll be agreeing to pay a variable rate. Their variable rates begin at as low as 2.57 percent, and their fixed rates begin at as low as 3.89 percent. Variable rates aren’t right for everyone, but on the plus side, Earnest does offer quite a few perks.
With Earnest, you’re allowed to skip a payment and make it up later, adjust your payment date as often as you’d like, and set up a payment plan based on your actual budget. To put it simply, you determine what you can afford and Earnest will offer you a corresponding rate and term—granted that you qualify.
They’ve got a whole go with the flow thing going on in terms of making payments, which eases stress by allowing their borrowers the breathing room they need when they’re spread too thin.
CommonBond is highly recommended if you’re looking to transfer your Parent PLUS loan into your child’s name. Or, you can keep the loan in your name and refinance for better interest rates and lower monthly payments. Yay!
There are some eligibility requirements that are set for students, however. One of those requirements is that your child has to have graduated from an eligible Title IV accredited university or a graduate program that falls under that category. In addition, there are certain credit requirements that will also determine his or her approval.
If and when you get approved, CommonBond offers you a choice of a fixed rate, a variable rate, or a hybrid rate which is a combination of a fixed and variable rate which may work in your favor. Rates start as low as 2.61 percent and are capped at 7.35 percent. Knowing that your interest rate will never exceed that 7.35 percent limit makes a huge difference.
We know—seven percent sounds high. But, compared to other private loan companies (eh-hem, Sallie Mae) who are ready and willing to hit you with interest rates at nine percent or higher, a seven percent cap doesn’t seem so bad!
Both their fixed and variable rate options come with repayment terms of five years, seven years, 10 years, 15 years, and 20 years. Their hybrid rate option only comes with a repayment term of 10 years.
Lastly, CommonBond stands out from the crowd with its 24-month forbearance option for borrowers should you fall upon difficult times. They also use a portion of the proceeds from each loan taken out to fund the education for other children in developing countries as part of their “social promise”.
SoFi is a very popular lender that you’ve probably heard of, and for good reason. They take care of student loan refinancing as well as Parent PLUS Loan refinancing.
With SoFi you can opt for a fixed interest rate or a variable interest rate, starting as low as 2.47 percent and only get as high as 7.50 percent. Again, we love when a company caps their interest rates as it’s a sign that they have your best interest. Additionally, if you sign up for autopay with SoFi, they’ll discount your interest rate whether it’s fixed or variable by 0.25 percent!
Their repayment term options are for five years, seven years, 10 years, and 15 years. They also allow you to transfer your Parent PLUS loan to your child—with their consent, of course.
4. Laurel Road
Laurel Road is another popular lender that lets you apply to refinance your Parent PLUS Loans as soon as your child graduates.
Laurel Road offers both fixed rates and variables rates as well, however, their rates begin a little bit higher at 3.24 percent and can reach up to 7.02 percent. Their repayment term options are much like the others, as they offer five years, seven years, 10 years, 15 years, and 20 years.
Laurel Road’s terms for federal student loan repayments start at 10 years for a standard plan. This may seem intimidating because a short plan means higher monthly payments‚but it also means paying off your student loan debt that much faster.
This lender also allows you to refinance the loan in your child’s name with their consent. If this is the case, your child will still need to meet the eligibility criteria and income requirements to qualify for this option.
PenFed isn’t solely a private lender. They’re actually a credit union that offers Parent PLUS Loans refinancing. The PenFed credit union offers Parent PLUS loan refinancing through Splash Financial. They offer both fixed interest rates and variable rates.
They offer similar loan repayment terms for five years, eight years, 12 years, and 15 years. They also allow you to transfer your Parent PLUS loans into your chid’s name if you’re child is willing and able to make the payments and also fulfill the eligibility requirements.
With PenFed, your rates are determined by your credit, therefore they are subject to change.
Joshua Holt is a practicing private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He is always negotiating better student loan refinancing bonuses for readers of the site or finding honest companies that provide student loan advice for a fair price.