How To Refinance A Parent PLUS Loan

Federal parent PLUS loans are available to parents of dependent undergraduate students. While parent PLUS borrowing has decreased by 20% in the past 10 years, according to the College Board, it’s grown substantially since 1990, which reflects soaring college prices over that time period.

Parents who find themselves burdened by PLUS loans—or who simply want to save money on repayment—have several options. One strategy for parent borrowers is student loan refinancing, which can lead to a lower interest rate for creditworthy applicants. Some lenders even allow parents to transfer their PLUS loans to their kids.

What Is a Parent PLUS Loan?

Parent PLUS loans are a type of federal direct loan, which is also the umbrella that subsidized and unsubsidized federal loans and graduate PLUS loans fall under. But parent PLUS loans have some major differences:

  • PLUS loans require a credit check, unlike other federal loan types. To get a loan, you must show that you meet specific criteria. For example, you can’t have more than $2,085 in debt that is 90 days past due or negative marks such as a default, bankruptcy, repossession or foreclosure on your credit report within the previous five years.
  • You can still get a parent PLUS loan if you have a so-called “adverse credit history.” You must get a co-signer (known as an endorser) or successfully document the extenuating circumstances that led to your negative credit history. In either case, you’ll also participate in credit counseling.
  • Parents can borrow up to their child’s total cost of attendance, after subtracting any other financial aid they’ve received. This can lead some parents to take on more debt than they need.
  • Parent PLUS borrowers are not eligible for all federal repayment plans. In order to qualify for income-driven repayment, they must federally consolidate their PLUS loans and sign up for income-contingent repayment (ICR).
  • Parent PLUS loans have higher interest rates and fees than other federal loans. For 2022-23, the fixed interest rate is 7.54%, compared to 4.99% for subsidized and unsubsidized loans for undergraduate students. The parent PLUS loan fee is 4.228% of the total loan balance, compared to 1.057% for subsidized and unsubsidized loans.
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Should You Refinance a Parent PLUS Loan?

Since parent PLUS loans are typically pricier than other federal loans and come with fewer payment-reduction options, refinancing offers the potential to save money with fewer downsides. That doesn’t mean refinancing parent PLUS loans is risk-free, however, so it’s important to compare the pros and cons for your individual situation.

Generally, it’s a good idea to consider parent PLUS refinancing in the following circumstances:

  • You, as the parent borrower, have a good or excellent credit score and could qualify for the most competitive interest rates. Or, even if you’re not eligible for the lowest available rate, you’d stand to shave several points off the rate you’re currently paying.
  • You don’t work for an employer that could qualify you for Public Service Loan Forgiveness (PSLF). Parent PLUS loans are eligible for this program when federally consolidated and repaid under ICR. If you refinance federal loans, they’ll become private loans and you’ll lose access to PSLF.
  • Your income is strong and consistent, and you don’t foresee needing to postpone or reduce payments in the future.

Avoid parent PLUS refinancing if:

  • Your credit score, income or debt-to-income ratio wouldn’t qualify you for a meaningfully lower interest rate than what you’re currently paying.
  • You are working towards PSLF or would benefit from signing up for the income-contingent repayment plan.
  • You may need to postpone payments through deferment or forbearance for a period of time. Federal loans provide much more flexibility than privately refinanced loans.

Refinancing in the Parent’s or the Student’s Name

If the student for whom you took out PLUS loans has left school and now has good credit and a strong income, they may be able to refinance your parent PLUS loans in their own name and take on payment responsibility. With this strategy, a parent essentially transfers a parent PLUS loan to a student.

Not all lenders offer this option, so make sure to explicitly ask any lenders you’re considering. If the student’s financial profile doesn’t make them eligible to refinance on their own, you could co-sign their refinance loan. Keep in mind that while you’ll no longer be the primary borrower, you will still be on the hook for repayment if your child can’t afford to pay.

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How to Refinance Parent PLUS Loans

Follow these steps to complete the parent PLUS loan refinancing process:

1. Compare Lenders

The best way to get the lowest rate possible is to compare multiple refinancing offers. Lots of lenders offer prequalification on their websites. Use this to get an estimate of the interest rate you may receive without undergoing a hard credit check.

Take a look at other features, too, like eligibility requirements, available forbearance, potential interest rate discounts and repayment terms.

2. Estimate How Much You Could Save

Once you have a few provisional offers from lenders, check to make sure refinancing is worthwhile for you.

Calculate how much you’d pay on your current repayment plan with your current interest rate over the next five, 10 or 15 years (or however long a refinance term you choose). Compare that with what you’d pay at the new interest rate and identify your potential savings, if any. A refinance calculator can do the math for you.

3. Gather Documentation

Once you’ve chosen a lender, rate and term, prepare to submit your application. You’ll likely need the following documents: a driver’s license or passport; proof of U.S. citizenship, such as a Social Security number; proof of employment and income, like payslips; and 30-day payoff statements from your current lenders or student loan servicers for each loan you plan to refinance.

A payoff statement tells the new refinance lender how much they’ll pay to your servicer so that they can take on your debt. To get your payoff statements, log into your servicer’s online portal or call their customer service number.

4. Submit an Application

Once all your materials are ready, complete an application. Most refinance lenders allow you to do this on their website, though some traditional banks and credit unions might require you to visit a local branch. At this point, the lender will run a hard credit inquiry, which will appear on your credit report and will yield an official interest rate offer. Make sure you’re comfortable with the offer, and read through the loan agreement to understand all the fees and requirements.

If your application is accepted, the new lender will have you sign a loan agreement before paying off your previous loans. Make sure to keep paying your prior loans until you’ve received confirmation to begin making payments to the refinance lender.

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Alternatives to Refinancing a Parent PLUS Loan

You may find that you’re not eligible to refinance a parent PLUS loan or that you’d rather not forfeit valuable federal loan protections. But if you’re eager to pay less per month, try these alternatives:

  • Federal loan consolidation: By consolidating a parent PLUS loan into a direct consolidation loan, your loan term will range from 10 to 30 years, depending on the loan balance. That will likely mean a lower payment. But you’ll pay more in interest over time with a longer loan term, so compare it with the other repayment options before moving forward. If you choose ICR, you’ll have to consolidate parent PLUS loans first.
  • Income-contingent repayment: Under ICR, you’ll pay either 20% of your discretionary income based on your family size and earnings, or the amount you’d owe if you were to choose a 12-year repayment plan with fixed payments—whichever is less. You’ll have to recertify your income each year, which means your payments could decrease or increase. You’ll receive forgiveness on the loan balance remaining after 25 years.
  • Extended repayment: You must have at least $30,000 in PLUS loans in order to repay them under the extended plan. Your repayment period will be 25 years, instead of 10 years on the standard plan, and you can choose either fixed or graduated payments (which increase gradually). If you’ll likely take a long time to pay off your loans, though, it could make more sense to choose ICR, since you’ll potentially get lower payments and forgiveness at the end of the repayment period.
  • Graduated repayment: This 10-year plan begins with lower payments that increase every two years. It’s a good option if you expect your income to go up, but it could be less useful for parents who are already at their peak earning potential or who may retire during the repayment period.
  • Get help from your child: It’s always possible to create an unofficial arrangement with your child in which they help you pay off PLUS loans. It’s best if you agree on an amount they can afford to contribute and get the plan in writing. That way, you know when to expect payment from them each month.