If you’re looking to save money or pass off payment obligations to your child, refinancing can help. (iStock)
Parent PLUS Loans are just one of many student loan options available through the U.S. federal government. Unlike others, though, these are taken out by a parent of the student attending school — not the student themselves.
Though PLUS Loans can certainly be a good way to help a child through college, they also require many years of repayment, and if you’re one of the many parents stuck with those payments, you may be looking for a way out.
Fortunately, PLUS Loans can be refinanced. Parents with PLUS Loans to their name can either refinance into a private loan, possibly lowering their interest rate and monthly payment in the process or, if they prefer, refinance the loans into their child’s name, offloading the repayment obligations along with them.
Is it a good idea to refinance Parent PLUS loans?
Refinancing is a smart option when you have strong credit and are looking for a lower rate. Parent PLUS loans currently have a 7.08 percent interest rate, and many lenders offer much lower rates than these given the current market. If your income is strong and your credit score high, you can likely shave a good amount off your rate and monthly payment.
To see what kind of student loan refinancing rates you qualify for right now, plug in your information into Credible's online tool to get free quotes.
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How to pay off your PLUS loans faster
If you want to pay off those loans quicker, make sure you’re putting any windfalls toward the balance — including tax refunds, holiday bonuses, commissions and more. You should also aim to make more than the minimum payment when possible, and see if your employer offers any student loan assistance. These can all help you whittle down those balances faster than originally planned.
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Refinancing to a shorter term or lower rate can also help, so use a tool like Credible to see what refinancing options you have available. Both fixed-interest rate and variable-interest rate offers are available, and it won’t hurt your credit score.
What it means to refinance a parent PLUS loan in your name
Refinancing a parent PLUS loan into your own name means you’ll still be on the hook for payments. The big benefit here is that you’ll probably lower your rate and your payment in the process (PLUS Loans have the highest interest rates of all federal student loan programs). This can make paying down that balance easier or, in some cases, even help you do it faster.
If you have a great credit score, refinancing in your name is an even better idea. Since PLUS Loan rates aren’t credit-based and private loans are, your score will likely qualify you for a significant discount on interest once you refinance. Use Credible to compare rates and refinancing offers to find one that best meets your financial needs.
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Here’s how Howard Dvorkin, a certified public accountant and chairman at Debt.com, explained it: “Refinancing a parent PLUS loan in a parent's name usually saves the parent more money because they tend to have better financial histories and are more creditworthy than their kids.”
Can I transfer a Parent PLUS loan to the student?
If you’re having trouble making your payments, refinancing into your child’s name can be a smart move. Additionally, this can also be a good way to encourage more responsibility in your child. If they’ve graduated, gotten a good job, and are on their feet financially, refinancing the loans into their name can help them learn how to better manage their money and build their credit.
In this case, the lender would consider your child’s credit score, income, and other factors when setting the loan’s rate and terms.
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“If a parent refinances a PLUS loan into their child’s name, they will want to do this when their child finds a career and becomes financially stable,” Dvorkin said. “Their child will need a pretty good credit score to benefit from this type of arrangement, and it's best for the parent because they are no longer responsible for the loan.”
What you should consider before refinancing parent PLUS student loans
Refinancing your federal PLUS Loans into a private loan means losing all federal loan benefits — including the income-based repayment plans, loan forgiveness programs, forbearance options and other perks they come with. Because of this, it may be smart to consider a federal Direct Consolidation Loan first, as these can also lower your payment, while still retaining the valuable benefits of a federal loan.
You should also take into account your credit profile — or that of your child’s — before moving forward with a refinance. Private student loan lenders based their rates and terms on credit score, debt-to-income ratios and other elements of your financial picture, so if you or your child is not in a strong place credit-wise, it might not be beneficial to refinance just yet.
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When this is the case, Dvorkin suggests a creative alternative. “Parents can pursue an informal arrangement with their child to have them start paying off the loan, if both parent and child agree to the details of repayment. In this case, a child would become the ‘borrower’ and a parent would set interest rates and other terms similar to an official refinanced arraignment."