Save money and your credit score with a Parent Plus Loan refinance.
You love your kids but now you’ve got tens of thousands in Parent Plus loans and a monthly payment that’s keeping you from creating your own financial future.
How does Parent Plus Loan refinancing work and is it the solution to free you from this burden?
I’m revealing two options for Parent Plus loans that could help you get clear of the problem and back on your feet.
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What are Parent Plus Loans?
So I’m probably one of the last remaining holdouts saying college is still worth it and I fully understand the irony here from a guy with an online business that requires absolutely no degree. But college isn’t cheap so we’ve come up with all kinds of ways to pay for it, some great and…some not so much.
In this video, we’ll look at Parent Plus loans, the pros and cons of this way to pay for college. I’m then going to reveal three ways to refinance your parent plus loans to get out from under that burden.
It’s part of a partnership with Splash Financial, a three video series on paying for college from the different student loan repayment options we talked about in our last video to how to refinance your student loans.
Splash Financial is a leading, tech-driven student loan refinance company that works with you to consolidate all your loans into one monthly payment. You may be able to get lower rates on your loans to put your payments within your budget and the process to check your rates takes less than three minutes.
Pros and Cons of a Parent Plus Loan
Now if you’re on a video about Parent Plus Loan refinancing, I’m guessing most of you already have parent plus loans or know something about them. I still want to cover some of the pros and cons but I don’t want to spend too much time here. We’ll cover the basics of the program but I want to get to those three ways to refinance your parent loans.
US News reports the average cost of attendance at a public in-state university at $9,700 for the 2018-2019 school year. That’s per year and less than a third the cost to attend a private university. That’s not going to be covered by regular student loans so the Parent Plus loan program has become a way to fill in the gap.
The Parent Plus is a part of the government’s Direct Plus program for unsubsidized loans made available through schools. The loans aren’t need-based so anyone can apply and they have a special advantage to fill in that gap left by other aid.
Your borrowing limit on a Parent Plus loan is the cost of attendance minus any other financial aid. That means you can completely cover the rest of those college costs with this loan. Because parents usually have better credit than their college-bound teens, the Parent Plus loan might be easier to get than another unsubsidized loan to the student.
There are some drawbacks to the Parent Plus program and some pitfalls to avoid. First, understand this is YOUR loan. You can’t transfer parent plus loans to anyone else and missing payments can destroy your credit. We’ll talk about those refinancing options pretty soon but understand this is just like any other loan on your credit.
Rates on a Parent Plus loan are higher than other types of student loans. You’ll find current rates on studentaid.ed.gov, currently at 7.6% in May 2019. The rate changes but it’s a fixed rate once you get your loan so your actual rate won’t change after getting the money. One huge drawback of the Parent Plus program is the additional loan fee, currently at 4.26% of your loan.
Frankly, I’m surprised the fee is allowed to be so high. Four and a quarter percent, that means borrowing $20,000 will cost you over $850 on top of the fairly high interest rate.
Not all schools participate in the Parent Plus program and you have to file a FAFSA to apply. Understand also that repayment starts immediately on these loans. There’s no deferment until the student graduates like with other student loans. Some schools offer a deferment period but it’s not always the case.
So the Direct Plus program can be a great way to fill in that gap and help your kids go to college but it’s probably not the kind of loan you want to be trapped under for too long. That current rate of 7.6% is well above the rate on mortgages, subsidized student loans and even Parent Plus refinance rates.
In fact, refinancing a Parent Plus loan can save thousands and lower your payment. Let’s look at a hypothetical example here compares a 15-year repayment on a $30,000 loan at the current Parent Plus rate of 7.6% versus the starting rate of 3.75% on Splash Financial. Now these rates are current as of 5/1/2019 and the current 15-year rate is around 4.91% but might change so check your current rate. There’s no loan fee on Splash and they currently offer a $300 bonus for refinanced loans over $30,000 with this link.
How to Refinance Parent Plus Loans
Now let’s look at two refinancing options for Parent Plus loans as well as the pros and cons of each.
First is I see a lot of parents refinance the loan in their name. This doesn’t take the loan off their credit but can mean lower rates and payments. That example we just looked at, refinancing a $30,000 loan at 4.91% instead of the 7.6% parent plus rate would have lowered the monthly payment and put it within budget.
Besides the potentially lower payment and interest savings, since parents usually have better credit than their children, this might be the easier refinance. The current minimum credit score at Splash is 700 FICO or as low as 670 with a cosigner.
One drawback to a Parent Plus Loan refinance is that you’ll lose those federal loan benefits like public service forgiveness or the income-contingent repayment. With that public service loan forgiveness program, you have to make 10-years of payments while employed in some of those approved public sector jobs. Remember though, that PSLF program for parent loans requires you to first consolidate and then enter the income-contingent program.
Parent Plus loans by themselves aren’t eligible for the loan forgiveness. Since most parents are well into their 40s or 50s when they take these loans, this isn’t going to help much anyway unless you’re willing to quit your job and get one in public service.
Another option is for the student to refinance their parents’ loan in their own name. I talked to Mark Wilson over at Splash and he said this is one he’s seeing a lot, students refinancing loans their parents cosigned originally to remove the loans from their parents’ credit.
This option offers benefits for the student as well as the parents. For the parents, they no longer have that monthly burden and can get back to saving for their retirement. As a father, I’ll do everything possible to make sure my son is set up to succeed but I’ve also got to make sure I’ve got enough to live on in retirement and don’t become a financial burden on him. Getting that Parent Plus loan off your credit is not only going to help improve your debt-to-income and other credit factors, it’ll free up space in your budget to pay off other debt.
On the student’s side, refinancing the loan gives them the opportunity to start building credit with those regular repayments and just start being responsible for their debts. Maybe it’s a tough burden to bear but that debt paid for a college education so they need to consider it an investment in their future.
Requirements to Refinance Parent Plus Loans
Refinancing your Parent Plus loan is pretty quick and straight forward for the student or parents. US citizens are eligible to apply on Splash and they’ll do a soft-check on your credit first so it doesn’t affect your credit score. There are no origination or early repayment fees and terms are available from five years to 15-year repayment.
Splash can refinance loans of $7,500 up to $300,000 and offers a $300 bonus for refinancing over $30,000 with rate discounts for borrowers with graduate degrees. You’ll need a minimum credit score of 700 FICO or 725 for loans over $150,000 but the minimum drops to 670 FICO if you have a cosigner with a 720 credit score.
Checking your rate on a refinance takes less than a few minutes and you’ll usually get an email approval in less than an hour. Splash loans are funded by credit unions and banks so it’s available in all 50 states and Washington DC. You’ll set up an account with your email and then enter your contact info. With just your annual income and education information, you’ll be able to get your rate within minutes.
You’ll need some documents to apply so it’s best to have those handy to speed up the process. This includes payoff statements for your loan, pay stubs for the past three months, identification and proof of income. Splash will need to verify your income, education, identity and current loans. They’ve been working to automatically verify some of these through credit reporting but you still may need to upload some docs.
Checking your rate on a parent plus refinance won’t affect your credit score and Splash has terms from five- to 15-year repayment plans. There are some solid benefits to using a Parent Plus Loan to help pay for college but it's not the type of loan you want on your credit for long.