Refinancing a federal Parent PLUS loan can be a smart way to save money on interest or reduce your monthly payments. Typically, private lenders handle Parent PLUS refinancings, and that means you will lose some protections and benefits offered by the federal loan program. But if those benefits don’t mean much for you, refinancing can be a good choice.
Learn?how to refinance Parent PLUS loans, as well as some alternatives.
What Are Parent PLUS Loans?
A Parent PLUS loan generally refers to a federal Direct PLUS loan made to a borrower who’s the parent of an undergraduate student enrolled in a participating college or career school. The Department of Education extends Direct PLUS loans to eligible students or parents.
Funds from a Parent PLUS loan initially go toward tuition, fees, room and board, and other expenses charged by a school. Any leftover money can be spent on other education expenses. The maximum amount that a parent can borrow is the cost to attend a school subtracted by any other financial aid a student gets.
For Parent PLUS loans whose proceeds were distributed on or after July 1, 2022, and before July 1, 2023, the fixed interest rate is 7.54%. The Department of Education also charges a fee (a percentage of the loan amount) for each Parent PLUS loan. As of Oct. 1, 2021, the loan fee is 4.228%.
When to Refinance a Parent Plus Loan
If you have a Parent PLUS loan, when does it make sense to refinance it? Here are four goals you might be able to achieve through refinancing:
- Lower interest rate: A private lender might be able to offer an interest rate that’s lower than the federal government’s interest rate.
- Combination of several loans: Refinancing can allow you to consolidate several loans into one loan, ideally at a lower interest rate.
- Lower monthly payments: A Parent PLUS loan might come with a 10-year payoff period. But a private lender might be able to offer a 20-year payoff period, which could reduce your monthly payments. It might also bump up the amount of interest you wind up paying over time.
- Improved customer service: If you’re unhappy with how your loan is being managed, you might opt for finding a new lender that offers better customer service.
Be aware that if you refinance a Parent PLUS loan into a private loan, you will likely lose federal lending advantages such as the ability to temporarily stop making monthly payments or to lower the payments based on need.
How to Refinance Parent PLUS Loans
You might decide to refinance a single high-interest Parent PLUS loan into a single lower-interest private loan. Or you may want to refinance several Parent PLUS loans into one loan to achieve a lower interest rate or to simplify repayment.
Refinancing with a private lender is the only avenue for transferring a Parent PLUS loan to a student. If the student’s credit isn’t solid enough to qualify for refinancing, a parent may be able to co-sign the new loan.
So, how does refinancing of a Parent PLUS loan work? Here are the steps:
- Gather information. Collect information that a lender will want to see, including details about your current Parent PLUS loan or loans.
- Shop for a private lender. To make the most of refinancing, find a lender whose interest rate is lower than the rate you’re paying to the federal government. Be aware that the rates you’re quoted by a bank, credit union, or other lender may be fixed or variable.
- Fill out a loan application. When you apply for refinancing, a lender will check your credit. Some lenders quote rates based on a “soft” credit pull, which doesn’t affect your credit score. Before approving your application, a lender will do a “hard” credit pull, which temporarily dings your credit score.
When a private lender considers your Parent PLUS refinancing application, it'll look at several factors:
- Credit history: A lender typically wants to see a FICO score that’s at least in the upper 600s.
- Income: A lender will look at how much money you owe (debt) versus how much money you make (income). This is known as a debt-to-income ratio. A lender usually wants this ratio to be no higher than 50%.
- Payment history: A lender wants to feel confident that you’ll make on-time loan payments and pay off the entire loan. To get a sense of your payment history, it’ll review your credit report.
Compare the Best Private Student Refinance Lenders
|?Company||?Interest Rate||?Loan Terms||?Maximum Loan Amount||?Minimum Credit Score|
|Splash Financial||4.96%–10.99%?||5–25 years?||None||640?|
|Discover||5.99%–11.62%?||10–20 years?||$150,000?||Not disclosed?|
|Citizens Bank||7.27%–12.42%?||5–20 years?||$750,000?||Not disclosed?|
|PenFed Credit Union||7.74%–9.93%?||5–15 years?||$300,000?||Not disclosed?|
|ISL Lending||6.93%–11.58%?||7–20 years?||$300,000?||670?|
|Laurel Road||5.74%–11.24%?||5–20 years?||None?||Not disclosed?|
Alternatives to Refinancing Parent PLUS Loans
If you don’t want to refinance a Parent PLUS loan, other options are available.
Rather than simply refinancing a single Parent PLUS loan, you might be able to bundle several of them into a single consolidation loan. Private lenders and the Department of Education offer these consolidation loans. Consolidating several loans might lead to a lower interest rate, shorter payoff period, or lower monthly payments.
If you decide to consolidate Parent PLUS loans into a federal consolidation loan, do not include any Direct federal student loans in your new loan. Doing so could jeopardize some federal student loan benefits, such as eligibility for PSLF forgiveness. You can choose which loans to include when you consolidate.
Change in Repayment Plan
You can change the repayment plan for a Parent PLUS loan at any time and at no cost. Depending on your circumstances, you may be able to switch from a standard repayment plan (usually more than 10 years) to a plan that starts with monthly payments that are lower then rise over time (still usually sticking to a 10-year payoff period) or a plan with a payoff period as long as 25 years.
To change your repayment plan, you must contact the company that services your loan.
Deferment allows a borrower to temporarily pause payments on a Parent PLUS loan. Situations that might make you eligible for deferment include economic hardship or ongoing cancer treatment. During the deferment period, interest charges usually don’t accumulate. However, any unpaid interest eventually may be tacked onto the loan balance.
Public Service Loan Forgiveness (PSLF)
The Public Service Loan Forgiveness program forgives the unpaid balance on a Parent PLUS loan if at least 120 qualifying monthly payments have been made and if the student works full time for an eligible employer. Eligible employers include the U.S. military, government agencies, and nonprofit organizations.
Frequently Asked Questions
What Is a Parent PLUS Loan?
A Parent Plus loan, also known as a Direct PLUS loan, is a federal loan taken out by a parent to cover an eligible student’s college expenses. The student must be a dependent of the parent who is enrolled at least half-time at an eligible school. Generally, the borrower must be a biological or adoptive parent, but a stepparent also might qualify.
What Information Is Needed to Refinance a Parent PLUS Loan?
Information that you normally need to supply when refinancing a Parent PLUS loan includes loan statements, proof of income (such as pay stubs), annual salary, proof of identity (such as a driver’s license), Social Security number, and home address.
What Are the Different Types of Refinancing Options Available for Parent PLUS Loans?
Among the types of refinancing options for a Parent PLUS loan are converting a single high-interest Parent PLUS loan into a single lower-interest private loan, or rolling several Parent PLUS loans into one loan. In most cases, you’ll be refinancing through a private lender.
What Are the Fees Associated With Refinancing a Parent PLUS Loan?
A private lender might charge an application, origination, or disbursement fee, or a prepayment penalty. However, some lenders offer fee-free refinancing loans.
Federal Student Aid. “Parent PLUS Loans.”
Federal Student Aid. “Interest Rates and Fees for Federal Student Loans.”
Federal Student Aid. “What Are Loan Deferment and Forbearance?”
ISL Education Lending. “Should I Refinance My Parent PLUS Loans?”
Citizens Bank. “Should I Refinance My Private or Federal Student Loans? If So, How?”
Federal Student Aid. “Consolidating Student Loans.”
Federal Student Aid. “How Do I Change My Repayment Plan?”
Federal Student Aid. “Student Loan Deferment Allows You to Temporarily Stop Making Payments.”