Is Your Parent PLUS Loan Ripe for Refinancing?
Student debt is often a key financial concern among 20- and 30-somethings, and rightfully so. Though the data still proves that higher education pays off over time, having a lot of student debt can hinder a borrower’s financial situation years into their professional life.
However, as the estimated three million parents that currently hold federal Parent PLUS loans can attest, student debt doesn’t discriminate based on a person’s age. Between the rising cost of tuition and the fallout from the financial crisis, a growing number of parents have had to supplement savings with other sources of financing – and the Parent PLUS loan has historically been the first line of defense.
While the Parent PLUS loan has some advantages, it’s not ideal for every situation. And now that it’s possible to refinance Parent PLUS loans at lower rates, it’s important to understand the key arguments for refinancing – and whether that strategy is right for you.
Here are five reasons to consider refinancing a Parent PLUS loan.
1. Your Parent PLUS loan has a high interest rate
A common misconception about federal student loans is that they always offer the lowest interest rate available for an education loan. This may be the case for undergraduate students, but for parents taking out Parent PLUS loans, the rates have historically been less than competitive.
Depending on when you took out your Parent PLUS loan, your interest rate could be anywhere in the 6-8% range, and potentially even higher. This is particularly irksome for parents who took out Parent PLUS loans between 2006-2013, during which time prevailing rates dropped to rock bottom and PLUS loan interest rates remained high.
With rates today still at historic lows, it can be possible to refinance a Parent PLUS loan at a much lower rate, saving a significant amount of money on interest in the process.
2. You have a large Parent PLUS loan balance.
With a Parent PLUS loan, borrowers can take out as much as they need to cover the cost of education (minus other aid) – which means many parent borrowers owe big balances. As a general rule, the more you owe and the more you can reduce your rate through refinancing, the more you can save. Also, some lenders may require a minimum amount in order to refinance.
3. You’ve taken good care of your finances.
A private lender could look at things like your employment history, track record of meeting financial obligations and monthly cash flow minus expenses.
4. You have a predictable income stream.
A key argument for not refinancing federal student loans is that they often come with benefits and protections that don’t transfer to private lenders through the refinancing process. However, Parent PLUS loan borrowers don’t have access to as many of these benefits (for example, they can’t opt for income-driven repayment plans such as Pay As You Earn or PAYE).
However, there are still a few considerations to be aware of when refinancing Parent PLUS loans. For one thing, PLUS loans allow for deferment and forbearance, while private loans may not. And PLUS loan borrowers can select from graduated and extended repayment plans, which can lower monthly payments while increasing the total amount of interest the borrower will pay. Finally, under some circumstances, Parent PLUS loans can be discharged in bankruptcy or upon the death or disability of the borrower or student – features that don’t hold true for most private loans.
If your income is unpredictable, you may be okay with paying a higher interest rate in order to take advantage of these protections.
5. You want to save money.
What’s the main reason to refinance a Parent PLUS loan? Because you want to save money, lower your monthly payments, and potentially get the loan off your plate sooner than anticipated.
With fixed rates starting at 3.50% APR and variable rates as low as 1.90% APR (with AutoPay) for well-qualified borrowers,* SoFi helps parents like you reduce the cost of Parent PLUS loans. Save money and simplify payments by refinancing and consolidating multiple Parent PLUS loans – no application or origination fees required. And with our simple online process, you can apply in minutes and get on with your busy life.
A life that, hopefully soon, won’t include paying off a Parent PLUS loan.
*Learn more about Parent PLUS refinance rates here.