Can You Refinance a Parent PLUS Loan in 2023?
Parent PLUS loans can help fund your child’s education when they’ve maxed out their own federal loans. However, they typically come with a higher interest rate than other federal loans, making them expensive and harder to pay off.
Refinancing with a private lender allows you to lower your interest rate, save money, and potentially transfer the loan to your child. Still, there are several benefits and drawbacks to consider. The following guide provides an in-depth look at the process so you can determine if now is the right time for you to refinance.
How Does Parent PLUS Loan Refinancing Work?
When you refinance a Parent PLUS loan, you find a private lender to replace your existing federal loan. The new lender pays off your Parent PLUS loan and you get a new loan. Then, you make payments toward the loan, which will have completely different rates and terms.
If you just want to see what kind of rates you can get, you can fill out the application form on Credible with no commitment. This doesn’t affect your credit score.
Pros of Refinancing a Parent PLUS Loan
Save Money with a Lower Interest Rate
One of the biggest reasons you might refinance is to save money. Private lenders offer interest rates that start at half of Parent PLUS interest rates. You will need a credit score of at least 650 and a stable income to qualify.
Let’s say you have a $50,000 Parent PLUS loan with a 7.6% interest rate and 10 years remaining in your term. Your current monthly payment is $596. You decide to refinance with Credible and qualify for its current lowest fixed interest rate of 2.15% for a new 10-year term. This lowers your monthly payment to $463, saving $133 per month and $15,923 in interest over the life of the loan.
Lower Your Monthly Payment
A refinance can lower your monthly payment in a couple of ways. First, by lowering your interest rate, as highlighted in the example above. Even if you don’t qualify for a lower rate, you could be eligible for a longer term, which can also lower your payments. This could free up money for other expenses and financial goals.
Transfer Loans to Your Child
The only way to transfer Parent PLUS loan debt to a child is through a private refinance. This could be a good option if your child qualifies for a lower interest rate. It might also be helpful if you can’t pay back the loan but your child can.
Combine Loans Into One Monthly Payment
If you have several parent student loans, it’s likely that you’re balancing multiple loan servicers, due dates, minimum payments, and interest rates. Even if you have the funds to make payments, juggling so many loans makes it easy to miss a payment. Refinancing allows you to combine all of your student loans into one, even if you have both federal and private loans.
Cons of Refinancing a Parent PLUS Loan
Lose Federal Benefits
Federal loans, including Parent PLUS loans, offer special protections. When you refinance with a private lender, you lose these benefits. This includes:
- Income-Contingent Repayment: When you consolidate your Parent PLUS loan into a Direct Consolidation Loan, you become eligible for a repayment plan that limits monthly payments to a percentage of your discretionary income and extends your term.
- Graduated Repayment Plan: Monthly payments start low, increasing every two years so that you pay off the debt within 10 years.
- Extended Repayment Plan: Get a 25-year term instead of a 10-year term.
- Public Service Loan Forgiveness (PSLF): If you work for a qualifying government agency or non-profit organization, your loan may qualify for loan forgiveness.
That said, refinancing still might be worth it to you, with its lower rates and flexible repayment terms.
Could Pay More In Interest
While refinancing for an extended term can lower your monthly payment, you might pay more in interest. A lower monthly payment leaves more room in your budget for other expenses but also means you’ll pay interest for longer and on a higher loan amount.
Must Meet Eligibility Requirements
Private lenders review your credit history and finances to determine the level of risk they incur by lending to you. Each lender is different, but they generally prefer a minimum credit score of 650 and a stable, consistent income. The better your finances and credit are, the lower rates you qualify for.
If you don’t meet the requirements, however, you can apply with a cosigner to increase your chances of eligibility.
When Should You Refinance Your Parent PLUS Loans?
It’s typically best to refinance your Parent PLUS loans when you have a high credit score and stable income, as this will earn the lowest rates. Or, you might refinance when your child is in a good financial position to take over the loan. However, the loan industry is in a unique situation that makes right now the best time to refinance.
In order to control inflation, the Federal Reserve is raising the federal funds target rate. This rate is what banks and lenders use to determine interest rates for all loans, including student loans. There are at least three increases planned for this year, so interest rates will continue to rise. By refinancing now, you’ll get the lowest rates possible.
Even if your credit score is imperfect, most lenders offer a free rate check, so you can make an informed decision.
4 Steps to Get a Parent PLUS Loan Refinance
Shop Multiple Lenders and Compare Rates
Every lender uses a similar but different set of qualifications to determine your rate, which means some lenders can offer lower rates. Most have a prequalification tool to check your rates. Credible’s 2-minute rate check allows you to compare rates from up to 13 lenders with no obligation and no impact on your credit score.
Lenders also have varying features. For example, some lenders allow you to refinance in your child’s name, while others do not. Make sure you choose a lender with the benefits that matter to you.
Choose a Lender and Loan Terms
Student loan refinances can have fixed or variable interest rates. Fixed rates remain the same throughout the loan, while variable interest rates typically start lower but can fluctuate after a certain period. A variable interest rate could be worth it if you plan on paying off the loan during the initial low-interest-rate period.
You should also consider your loan term, which will determine your monthly payments. The longer the term, the lower your monthly bill but the more you pay in interest. Be sure to check for discounts, like for automatic payments, as you choose a lender.
Collect Documentation and Apply
After choosing a lender, you can submit a full application. You’ll need documentation like a government-issued photo ID, social security number, proof of income, and loan statements.
Get Approval and Loan Payoff
Most lenders take about 3 weeks to approve your application. During this time, you’ll continue making payments toward your Parent PLUS loan. After you get approval from your new lender, it will pay off your existing loan(s) and you’ll start making payments toward your new loan.
What Can You Do If You Don’t Meet the Requirements for Parent PLUS Loan Refinancing?
If you don’t meet the requirements to refinance your Parent PLUS loan, there are still options available. You can reapply with a cosigner who does meet the requirements. This can increase your chances of eligibility and even get a lower rate.
You may also consider a Direct Consolidation Loan, which combines multiple federal loans. It won’t lower your interest rate, but it will retain your federal protections. Plus, it qualifies you for income-contingent repayment, which can lower monthly payments and increase your term.
The Best Lenders for Student Loan Refinancing
Credible is a loan marketplace that matches you to lenders in minutes. Most of Credible’s lending partners can refinance Parent PLUS loans, so you can compare options without prequalifying on multiple sites. Unlike other marketplaces, Credible shows accurate rates based on your credit profile – not just estimates.
You can filter the results depending on what matters most to you, like APR, total repayment amount, and more. Credible is also completely free to use, with no origination or prepayment fees and no obligation.
It’s worth at least checking to see what kind of rates you can get. Credible has a $200 Best-Rate Guarantee, so if you do find lower rates elsewhere, you’ll get $200.
Splash Financial is one of few lenders that allow you to refinance Parent PLUS loans in your child’s name. It also has the option to refinance with your spouse, which can improve your odds of approval and earn you better interest rates. Plus, you can request cosigner release after only 12 months, while some of the competition requires a minimum of 24 to 36 months.
If your child didn’t graduate, Citizens Bank could be a good option. It’s one of the only lenders that does not require a completed degree for refinancing. Citizens Bank is also affordable, as it offers up to 0.50% in interest rate reductions for autopay and loyalty.
The Bottom Line
Refinancing Parent PLUS loans could lower your interest rate and monthly payments. It’s also worth considering if you want to transfer the debt to your child. While refinancing with a private lender means you lose federal protections, the savings could be worth it.
Interest rates are going up several times this year, so now is the best time to get the lowest rates possible. With Credible’s 2-minute rate check, you can compare multiple lenders with no impact on your credit score and no commitment.
Can I transfer my Parent PLUS loan?
Yes, you can refinance your Parent PLUS student loan with a private lender and transfer it to your child’s name. Not all lenders offer this option, but Credible’s lending partners do.
How do I lower my Parent PLUS loan payments?
There are several ways. If you have a good credit score and consistent income, you could refinance and qualify for a lower interest rate, which will lower your payments. You may also refinance for a longer term, which lowers payments but requires that you pay more interest over time. You could also consolidate your loans with a Direct Consolidation Loan to get a longer term with lower payments, but you won’t lower your interest rate.
Are Parent PLUS loans ever forgiven?
Yes. After getting a Direct Consolidation Loan, you can request income-contingent repayment, which lowers your monthly payment. After 25 years, your remaining balance could be forgiven. You may also qualify for Public Service Loan Forgiveness (PSLF) if you are an eligible government or nonprofit employee. PSLF only applies after you’ve made 120 qualifying payments.
Is this a good time to refinance my Parent PLUS loan?
Yes, now is the best time to refinance because the Federal Reserve is raising interest rates at least three times this year. Each time it completes an increase, interest rates on student loan refinances will also increase. By refinancing now, you can take advantage of the lowest rates possible.