Congratulations, parents—that bundle of joy you brought home more than two decades ago has now graduated college or earned his or her professional degree.
If you borrowed with the Parent PLUS loan program, you are not alone. Millions of families have used federal loans aimed at parents to help pay for their children’s education, according to the Department of Education.
However, these are among the most expensive federal loans for borrowers. If you borrowed federal Parent PLUS loans in over last four years, your loans likely have interest rates that range from 6.41% to 7.90%, plus the origination fees.
The good news is that you are eligible to refinance your federal loans once your child is within six months of graduation.
Parent PLUS loans accrue interest from origination, and payments typically start right after the loan has been disbursed. If you deferred payment when you took the loans, keep in mind that your repayment for Parent PLUS loans starts six months after your student has been out of school.
Check our student loan calculator to compare your rates.
Why refinance your Parent PLUS loans?
With refinancing, you take one new loan to pay off some or all of your existing loans. One of the benefits of refinancing into a no-fee private loan is that you can access rates starting at 2.13% for a variable loan and 3.50% for fixed-rate loans.
To give you an idea of savings, let’s say you borrowed a total of $80,000 in Parent PLUS loans between 2012 and 2016 and have an average rate of 7.09%. You’ll be on the hook for more than $930 per month with a standard 10-year term for these loans.
If you refinance that $80,000 student debt from a rate of 7.09% to 4.0%, for example, you can shave $120 off your monthly student loan bill on the same term—or more than $14,000 over the life of your loan.
Options for Refinancing Your Parent PLUS Loans
There are a few options for parents who are looking for money-saving solutions for their Parent PLUS loans know that their child has graduated.
Refinance Your Parent PLUS Loans
Similar to student loan refinancing, parents are able to bring their loan to a private lender and refinance for a lower rate.
At Earnest, we also offer the ability to customize your new loan terms based on a budget that works for you. Earnest’s Precision Pricing feature allows you to customize your new loan to fit your budget and needs.
By stretching out your term beyond 10 years, you can further lower your payments—or if you want to accelerate paying off this debt, you can shorten the term and make higher payments.
Refinance Your PLUS Loans in Your Child’s Name
If you and your child agree to move the loan into the child’s name, this can be a strong option for a parent looking to remove a financial burden. The child will have to apply to refinance with the parent’s loan and be able to prove that they can pay back the loan themselves. If approved, the loan will be moved on the child it was taken out for, and the parent will be able to focus on their own financial goals, like retirement.
Other Options for Help With Parent PLUS Loans
If refinancing isn’t the right fit, Parent PLUS loans are also eligible for some federal income-driven repayment and forgiveness programs.
Income-Contingent Repayment (ICR) and Parent PLUS Loans
There are four total income-driven repayment programs, but Parent PLUS loans are only eligible for ICR. This federal program may help parents who qualify lower their monthly bills, and after 25 years qualifying loans are eligible for forgiveness.
The loan payment amount will be the lesser of the following:
- 20% of your discretionary income or
- What you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income
Public Service Loan Forgiveness (PSLF) and Parent PLUS Loans
Another option for loan forgiveness for parents is the PSLF plan. You will still need to sign up for ICR to be a part of a federal income repayment program, but if you work in a qualifying organization already you could be on the path to student loan forgiveness in just 10 years, instead of 25.
The following types of organizations qualify for PSLF:
- Government organizations at any level (federal, state, local, or tribal)
- Not-for-profit organizations that are tax-exempt under Section 501(c)(3)
- Other types of not-for-profit organizations that are not tax-exempt under Section 501(c)(3) of the Internal Revenue Code, if their primary purpose is to provide certain types of qualifying public services