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Should I Refinance My Parent PLUS Loans?

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Parent PLUS loans are pretty easy to get and many schools "packaged" these loans for parents into students' financial aid offer letters. Those conveniences come with a hidden price, though. The repayment options may be great for some but not beneficial to others, and interest rates are often higher than financially savvy consumers deserve and vary each academic year.

Today, education loan refinance rates are often much lower than what you may be paying for your PLUS loans.

Education funding relief for federally owned loans is provided through Jan. 31, 2022. This includes suspending student loan payments and waiving interest on federally held student loans. Should you choose to refinance qualifying federal loans, you will not be eligible for this benefit.

When Should You Refinance Your Parent PLUS Loans?

Although refinancing federal parent PLUS loans may not be the right choice for everyone, here are five 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.

And because rates for new PLUS loans can carry a different fixed interest rate than the previous year’s rate, if you have more than one parent PLUS loan, each loan likely has a different rate. From 2006 through June 2021, rates were as low as 5.30% and as high as 8.50%.

Some private lenders offer to refinance PLUS loans, making it easy to combine multiple loans into one new loan with one rate, or just refinance a single high-rate PLUS loan to a new loan with a lower 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. Generally, the better your credit, the lower the interest rate you will be offered. You may also be able to delay the start of repayment until after the student graduates with a private refinance loan.

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, your new consolidation loan rate is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest 1/8 percent, so you won't 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, use our student loan refinance calculator to see details on our Reset Refinance Loan.

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 don’t want to wait for graduation

You don’t need to wait until after the student leaves college to take advantage of lower refinance rates. Our Reset Refinance Loan for In-School Borrowers allows parents to refinance education loans (including parent PLUS loans) before the student has graduated. This means you can take advantage of a low-rate environment when it occurs to lower interest (and total repayment) costs instead of taking the chance that rates will remain low throughout your student’s college years.

With the Reset Refinance Loan for In-School Borrowers, repayment can be deferred until the student is out of college as well. This is a special feature, as most lenders require payments to begin immediately after refinancing. If your student is still enrolled in college, refinancing without the option to defer could cause financial hardship.

Keep in Mind: Economic conditions can result in low variable interest rates being offered by multiple lenders. These rates can fluctuate quarterly or even monthly, and they will go up when markets improve. Because student loans are often a 10- to 15-year commitment, opting to refinance at even a low variable rate could mean you pay more over the life of the loan. With a fixed interest rate, you’ll always know how much you’ll need to repay and what your monthly payments will be.

Start by learning more about the Reset Refinance Loan for In-School Borrowers.

4. 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 offers and trying to understand the different types of financial aid and student loans, it 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.

In general, 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.

Keep in Mind: Parent PLUS loans do have some federal loan benefits but not as many as those for federal loans for student borrowers. These loans, if consolidated into a federal consolidation loan, are eligible for the Income-Contingent Repayment Plan. In addition, parent PLUS loans have more deferment and forbearance options than what is available for private loans, and the Public Service Loan Forgiveness program for qualifying parent borrowers is also an option. If you choose to refinance parent PLUS loans into a private loan, you will lose all federal loan repayment options that go along with them.

5. 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.

Start by learning more about us and all the details on our refinance loans.

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.

Learn more about your refinance options today.

ISL Education Lending offers Reset Loans with rates and terms to help meet your needs. We are a nonprofit business that proudly provides "Iowa nice" customer service no matter where you call home.


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