Student loans: how to refinance or transfer Parent PLUS loans
It鈥檚 noble to help your kids pay for college, but it鈥檚 not always easy.聽Or affordable.
That鈥檚 especially true if you borrowed direct Parent Loans for Undergraduate Students, also known as聽, to cover part of your child鈥檚 college costs. These federal loans come with high interest rates and fees.
But there鈥檚 a way to ease the burden of repayment once your child graduates:聽. There are two methods of refinancing聽a PLUS loan:
- You, the parent borrower, can refinance the loan in your name.
- Your child can refinance the loan in his or her name and take on the repayment responsibility.
You or your child will lose some borrower protections by聽refinancing, and your child must be financially secure enough to qualify solo.
Here鈥檚 how to refinance or transfer parent PLUS loans,聽补苍诲听what to weigh as you come up with an action plan.
Option No. 1: Refinance a parent PLUS loan in your name
PLUS loan interest rates are set by Congress, and they鈥檙e typically higher than the rates on聽other federal student loans. Refinancing with a private lender gives you the opportunity to carry聽your loan at a lower rate while you pay it off.
Parents and grad students who borrowed PLUS loans for the 2015-16 school year pay 6.84% in interest, compared to 4.29% on direct loans for undergrads. Historical PLUS interest rates are even higher: Parents who borrowed between 2006 and 2013 pay 7.9%.
Refinancing lenders offer interest rates based on your credit score, so parents with long employment and credit histories often qualify for lower rates. Variable rates start at 1.9% and fixed rates start at 3.74% on the refinancing marketplace聽, for instance, which includes a 0.25% rate reduction when you sign up for automatic payments. (Note that variable rates will start to increase if and when the Federal Reserve raises interest rates.)
Option No. 2: Your child refinances a parent PLUS loan in his or her name
The government doesn鈥檛 give parents the option to officially shift PLUS loans into their child鈥檚 name. After graduation (and once they have the means), some grads give their parent the amount of the loan bill each month or log in to their parent鈥檚 online聽portal to make the payment. But parents are still responsible for the debt.
A growing number of refinancing lenders allow graduates聽to refinance their parents鈥� loans 鈥� perhaps as part of refinancing their own loans 鈥� including Citizens Bank, CommonBond, Darien Rowayton Bank and SoFi.聽When a child applies for a new, refinanced loan, the lender pays off the prior balances and replaces them聽with a private loan. A child can include a parent鈥檚 PLUS loan in that bundle, which means he or she will then be on the hook to pay it back.
鈥淭ransferring a parent PLUS loan from parent to child can be very beneficial, as it releases the parent from the debt obligation and helps the child build his or her credit history by making on-time payments,鈥� says Phil DeGisi, vice president of marketing at聽CommonBond.
Refinancing requires a credit score in the high 600s or above, solid employment history and an income of at least $24,000 a year in most cases. Graduates聽have to meet those prerequisites to apply, and the more favorable their financial profile the lower the interest rate they鈥檒l get.聽A child can also include a parent as a co-signer on a refinanced loan, which may help him or her qualify or get a lower interest rate. In fact, Citizens Bank requires a parent to co-sign if a child refinances a parent PLUS loan.
A few considerations
Parent PLUS loans don鈥檛 have all the same benefits as other federal loan types, but you鈥檒l still lose access to some protections by聽refinancing. They include flexible repayment plans, student loan forgiveness and payment postponement options like聽补苍诲听.
Through these federal programs, parents can pause loan payments for up to three years if they lose their jobs or experience another financial hardship. Many refinancing lenders offer hardship deferment, but for a聽shorter聽time.
If you鈥檙e ready to refinance
If you鈥檙e ready to refinance, fill out the short form 聽to see how much you could save by refinancing through NerdWallet鈥檚 partner Credible. You鈥檒l then complete a longer form on Credible鈥檚 website, where you鈥檒l see personalized loan offers from up to nine lenders.
Nerd note:聽Of the lenders on the platform, only Citizens Bank and CommonBond give children the option to refinance a parent PLUS loan. (Citizens Bank requires a parent to co-sign the new, refinanced loan.) Keep that in mind when it鈥檚 time to pick the lender that鈥檚 best for you.
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