If you’re one of the approximately 45 million people in the United States who has student loans, you’re well-aware of how much they can be a drag on your finances. Having to pay interest on student loans each month can keep your from realizing important milestones in your life. Fortunately, there are some options for borrowers, such as refinancing. Here’s how to refinance a Parent PLUS loan.
What Does It Mean to Refinance Student Loans?
Refinancing loans is pretty common. Even though there are a few things to note that make refinancing student loans a bit different than other kinds of debt, the general principles stay the same.
So, what is refinancing student loans? At the most basic level, it’s taking out a new loan in order to pay off an old one. If you’ve never refinanced before, this might sound like kind of a bad idea. Playing around with debt can certainly be a dangerous game; so you’re not wrong to take a skeptical stance toward something you don’t understand.
But refinancing really isn’t a risky play. The whole point of refinancing is to get a loan that works better for you. This might mean a lower interest rate, a shorter or longer payoff term, or even adding or removing a co-signer. A student loan refinance can even do all those things at once.
These are the general reasons why someone would refinance their student loans. But even though there are certainly benefits to refinancing, you want to make sure it’s a good idea for someone in your situation before proceeding.
When Is Refinancing a Good Idea?
Refinancing can potentially be advantageous to anyone working to pay off their student loans. There are certain scenarios, however, where refinancing student loans particularly makes sense for the borrower. These are two main times when refinancing is typically a good idea: when refinancing a private loan or a federal Direct PLUS Loans.
As you’ll note, most other federal loans aren’t mentioned here. This is because you actually might not want to refinance these loans for a couple of reasons. First, they tend to come with pretty low interest rates to begin with. But furthermore, some federal loans come with benefits like income-based repayment and possible loan forgiveness. Unless you’re confident you won’t need to take advantage of those, and you can significantly lower your interest rate, it’s generally only worth refinancing Direct PLUS Loans from the federal government.
As mentioned in the previous section, there are a few reasons why it can make sense to refinance your student loans: you want a lower interest rate; you want to change the loan term; or you want to add or remove a co-signer. If you check one or more of these boxes and currently have private or Direct Plus student loans, refinancing might be the right choice.
How to Refinance a Parent PLUS Loan
For those who have a Parent PLUS loan they’d like to refinance for any or all of the aforementioned reasons, the process isn’t too complicated. The first thing you need to know is that any student loan refinancing will have to be done through a private lender.
Even if you only have federal loans, there are no refinancing programs through the government—only Direct Consolidation Loans. Consolidating loans is similar to refinancing in the fact that it replaces several of your current loans with a single new one. There’s, however, a major catch when you do this through the federal government. Unlike with most debt consolidation, Direct Consolidation Loans won’t be able to lower your interest rate. While you can still change loan terms and co-signer status, your interest rate on the new loan will just be the weighted average of your previous ones.
At the end of the day, the federal government isn’t a lender by trade. It’s offering most loans as a way to help students, not profit. Therefore, they simply don’t have the capacity to make these kinds of interest rate judgements in the same way as a private lender. And furthermore, if the federal government does mess up its refinancing calculations, it can lead to significant losses for the general taxpayer, whereas there’s no systemic risk from a private lender undershooting its profitability marks by offering too low of rates.
So, if you want to refinance a Parent PLUS loan—or any student loan for that matter, you’ll have to do it through a private lender. This can be an extremely simple or energy-intensive process depending on how you approach it. The hard way is to individually check each private lender out there to first determine if you qualify for a refinance, and then find the best deal out of all of those. This can take a lot of your precious time, while potentially not even getting you the best rates and terms.
Alternatively, borrowers can use a service like Juno, which instead of lending themselves, matches consumers with the best student loan deals. They guarantee you won’t find a better interest rate, and will actually match it if you’re somehow able to do so. This allows you to skip the long process of shopping for loans and get right to the heart of what you need.
What Else Do You Need to Consider When Refinancing Student Loans?
There are a couple more things borrowers should consider when thinking about refinancing their student loans. The first of these things is your credit score.
While credit might not have been an issue when getting loans from the federal government, it matters to private lenders. Financial companies need to know your credit in order to evaluate the risk of lending you money. Most private lenders are going to expect your credit score to at least be in the mid-600s or higher—though some will work with you if you have a lower score. Without strong enough credit, you’ll need to work on raising your score or else refinance with a co-signer.
The other thing important to note is that refinancing student loans doesn’t cost you anything. Those who have refinanced mortgages or other forms of debt are familiar with the fees associated with the process. With student loans, you don’t have to pay to refinance, which is just more of a reason why it makes sense for so many people.
If you have a Parent PLUS loan, consider if refinancing is the right choice for you. The ability to change interest rates, repayment terms, or add or remove a co-signer, can be hugely beneficial to those with student loans.
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