Refinancing Parent PLUS Loans
As a parent, you want to do everything you can to help your child succeed. If you took out a Direct PLUS Loan to help cover your child's college costs, you may be balancing these payments with those for your own student loans. If you are concerned about managing your student loan and parent Direct PLUS Loan repayments, you may be able to reduce your monthly payments and simplify your payment schedule by refinancing your student loans. While a parent and child cannot consolidate their loans together, your child can refinance separately to help manage their student loan debt. Read on to learn how refinancing may help you manage the repayment of parent PLUS and other student loans.
Refinancing may simplify the parent PLUS Loan repayment process
When your child's federal student loans enter repayment, they may be able to select from a range of repayment options, including extended and income-based repayment plans. However, the parent Direct PLUS Loans are not eligible for income-based repayment; instead, parents can consolidate with the federal Direct Consolidation Loan program and may be eligible for an income-contingent repayment plan that uses the borrower's income and family size, as well as the total amount of the consolidated loan, to calculate monthly payments.
While this may help parents that only need to manage a PLUS Loan, the situation becomes more complicated if you are making payments on your own student loans as well. Borrowers in this situation can combine their parent PLUS Loan(s) with their own student debt by refinancing with a private lender. In doing so they waive their right to any benefits or features that would have been available on their existing loans. This is especially important with federal loans, which offer some forgiveness and repayment options that private loans do not.
Some experts recommend consolidating parent PLUS Loans separately from other student loans to avoid this issue, but this still leaves borrowers with two separate payments each month. One of the benefits of refinancing your parent PLUS and student loans is the ability to combine them and potentially achieve one lower monthly payment, as long as you're comfortable exchanging the federal loan features with the features of a private loan. It's important to compare all aspects of your current and potential loans before deciding to refinance. Check out "Should I Refinance?" for more information on the factors to consider before refinancing student loans.
Refinance parent PLUS Loans for a better interest rate
Like other federal student loans, interest rates for Direct PLUS Loans are set by Congress annually, and are fixed from the date of disbursement until the loan is paid in full. If you decide to consolidate your student and/or PLUS loans through the Direct Consolidation Loan program, your new interest rate will be based on the weighted average of the loans you are combining. Federal student loan interest rates tend to be higher than private student loans - because of this, consolidating your federal student loans through the government may result in a comparatively higher interest rate.
If you choose to refinance your parent PLUS Loans or student loans with a private lender, your new interest rate will be based on your credit score. If you have a strong credit score, refinancing your student loans may help you lower your interest rate, which could in turn lower your monthly payments and save you money over the life of the loan. Many private lenders offer a choice of fixed or variable rate loans, allowing you to find the option that suits your needs. Always compare the interest rates on your existing loans with the rate on the potential loan before refinancing.
To learn more about the Citizens Bank Education Refinance Loan® and the benefits of refinancing, call 855-247-5557 and speak with one of our Student Lending Specialists.