Congratulations, parents—that bundle of joy you brought home more than two decades ago has now graduated from college or earned their professional degree.
If you borrowed federal student loans with the Parent PLUS loan program for your child’s education, you are not alone. Millions of families have used federal loans aimed at parents to help pay for their children’s bachelor’s degrees, according to the Department of Education.
However, these are among the most expensive education loans for borrowers with good credit. If you borrowed federal Parent PLUS loans 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 for a lower interest rate once your child is within six months of graduation.
Parent PLUS loans accrue interest from origination, and payments typically start right after the loan amount has been disbursed. If you decided on deferment when you took the loans, keep in mind that your repayment term 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 Should You Refinance Parent PLUS Loans?
With refinancing, you take one new loan based on your current credit score to pay off some or all of your existing loans through. One of the benefits of refinancing your student loan debt 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, depending on your credit history.
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 fixed rate of 7.09%. You’ll be on the hook for more than $930 in monthly payments 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 the loan. Loan borrowers will also have the option of selecting a variable rate loan if they prefer.
Options for Refinancing Parent PLUS Loans
There are a few options for parents who are looking for money-saving solutions for their Parent PLUS loans now that their child has graduated.
Refinance Your Parent PLUS Loans with Earnest
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 and repayment options based on a budget that works for you. Earnest’s Precision Pricing feature allows you to customize your new loan with a lower rate to fit your budget and needs.
By stretching out your term beyond 10 years, you can further lower your payments when you refinance loans—or if you want to accelerate paying off this debt, you can shorten the term and make higher payments. Also, Earnest doesn’t charge prepayment penalties so we encourage clients to make extra payments to shrink their loan balance.
Other Options for Help With Parent PLUS Loans
If refinancing your current loan 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-based repayment programs, but Parent PLUS loans are only eligible for ICR. This federal benefit may help parents who qualify lower their monthly bills, and after 25 years of repaying at this rate, 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