Well they did it — they made it to college. While your children may be busy with college classes or working at the job that college education afforded them, you may be making payments on federal PLUS Loans for parents for many more years to come.
Parent PLUS loans are pretty easy to get and many schools “packaged” these loans for parents into students’ financial aid award letters. Those conveniences come with a hidden price, though. Repayment options that may be great for some but not beneficial to others and interest rates that are often higher than financially savvy consumers deserve and that vary each academic year.
Today, education loan refinance rates are often much lower than what you may be paying for your PLUS loans.
When Should You Refinance Your Parent PLUS Loans?
Although refinancing federal parent PLUS loans may not be the right choice for everyone, here are four examples of when doing so might be the right thing for you.
1. When you want a single lower rate
Parent PLUS loans are fixed-rate loans, so the rate for the school year your child used the funds is the rate that specific loan will always be. For example, PLUS loans taken out for the 2018–2019 school year have fixed rates of 7.60%.
And because rates for new PLUS loans change every year, if you have more than one parent PLUS loan, each loan likely has a different rate. Since 2006, rates have been as low as 6.31% and as high as 8.50%.
Refinancing PLUS loans is more common than ever, and it’s easy to combine multiple loans into one new loan with one rate. And, with private lenders, the rates you are offered are based on your credit, not a number set by the federal government for everyone. The better your credit, the lower the interest rate you will be offered.
Keep in mind: Many lenders offer online tools to provide you with a rate quote or pre-qualification offer. Some companies make you create an account before getting their information, so be sure they are only making a “soft” inquiry into your credit history or that their website states the information will not impact your credit score.
If you don’t qualify to refinance your parent PLUS loans with a private lender, you have the option to consolidate those federal loans through the U.S. Department of Education. If you apply for a Direct Consolidation Loan, the interest rates of your current federal loans are used to determine your new consolidation loan rate, though, so you may not see a lower overall rate. Learn more about the differences between consolidating and refinancing with our Beginner’s Guide to Student Loan Refinance.
2. When you want to lower your payment
Parent PLUS loans are owned by the federal government, and, along with being fairly easy to get, they have a basic repayment term of 10 years. The federal government offers extended repayment, up to 25 years, to borrowers who owe more than $30,000 in PLUS loans. But what if your current remaining term or the amount you owe each month doesn’t work for you?
If you are looking to lower your payments, whether it’s to save for today, help other children with college costs or plan for your retirement, refinancing can get you a longer term. Many lenders have terms ranging from 5 to 20 years with multiple options in between.
The trade-off for a longer term with a refinance loan is that you will likely pay more in interest over the life of the loan. However, reputable lenders won’t penalize you for paying extra whenever you wish, which will reduce overall interest costs. You may feel like a longer-term loan, which doesn’t require high monthly payments and allows for extra payments at any time, provides a financial safety net.
If you’d like to see how repaying at a lower rate or with a different repayment term can impact your overall costs and monthly payment, or if you want to learn more about the benefit implications of refinancing federal loans into a new private loan, check out our Beginner’s Guide to Student Loan Refinance.
Keep in mind: Refinance loans with shorter term lengths typically provide the lowest rates that you see advertised. But even loans with longer terms often have rates lower than federal PLUS loan rates.
3. When you need a change
Refinancing your existing parent PLUS loans (or any other education loans in your name) lets you reset your loan; at today’s terms and on your terms.
When you and your child were reviewing financial aid award letters and trying to understand the different types of financial aid and student loans was likely a busy, stressful time. When you first signed paperwork for those loans, you may not have had enough time to fully consider the differences between federal loans for students and PLUS loans for parents and the financial impacts of taking out parent PLUS loans.
Today is a new day, and you can find that right mix of fixed interest rates and terms to set yourself up for financial success going forward. Take time to check out your different options, and determine how different rates, payments and terms will impact your short- and long-term budgets. Without the stress of making decisions quickly to pay college bills on time, you can find the right loan for you today.
Keep in mind: The better your credit, the lower rates you will be offered for the different loan terms available. The great thing with the refinance loans offered by most lenders is that you are able to select the rate and term combination that is right for you.
4. When it’s not you, it’s them. (The servicer that is.)
Education loans are long-term financial commitments, and like all long-term commitments, your partner plays an important role. With federal parent PLUS loans, you probably didn’t pick that partner, and maybe it’s just not working out. Maybe they aren’t giving you the attention you deserve. Maybe they’re a large corporation that cares more about profits than customer service. Or maybe they are constantly trying to sell you more or different financial products.
Whatever the reason, you can get away and pick your new partner. Lenders today offer a range of benefits like rate reductions for automatic payments or for military service. Many also have policies in place to forgive loans in the event of unfortunate circumstances. Now’s your chance to take a look around and make the choice your own.
Keep in mind: Some lenders detail their repayment benefits and policies on their websites, while you may have to call and ask others for more details. Do you want to work with a lender who is transparent and provides all the information you are seeking in the manner you prefer? If you speak with representatives on the phone, are they pleasant and helpful or do they try to get you off the phone quickly without providing the information you need?
Ready to refinance?
Regardless of your situation, if you’re considering refinancing your parent PLUS loans, it’s important to spend time weighing your options and finding the right loan and lender for you. What do you not like about your current loans? What does work now? What would be ideal in a new refinance loan?
Want to know how we can help?
Iowa Student Loan offers the Reset Refinance Loan with a rates and terms to help meet your needs. We are a nonprofit business that focuses on Iowa students and families, but we proudly provide “Iowa nice” customer service no matter where you call home. Pre-qualify today and we’ll provide you with rate and term options specific to your situation.