Personal finance

Should you refinance your Parent PLUS loans?

If you took out an expensive Parent PLUS loan to pay for your child’s education, you’re not stuck. Thousands of parents have refinanced with CommonBond to swap out their old Parent PLUS loan for a better, more affordable loan.

 

‍Back up – why are Parent PLUS loans so expensive?

Interest rates on Parent PLUS loans are steep compared to private loans for people with good credit. For example, at the time this article was published, the Parent PLUS loan has a 7.08% interest rate, which is considerably higher than what most private lenders can offer you. And if you read the fine print, that interest rate doesn't include a hefty 4.236% fee that the government tacks on top of the already-high interest rate. (1)

This fee is called an "origination fee," which is what the government charges to create a new loan for you. Origination fees are not included in the quoted interest rate. For example, if you take out a $30,000 Parent PLUS loan, you're paying $1,270.80 just to process the new loan. All said and done, Parent PLUS loans frequently balloon into massively expensive debts, racked with exorbitant rates and high fees.

How can I get a better rate on my Parent PLUS loan?

Just because you took out a Parent PLUS loan doesn’t mean you’re stuck with it forever. With CommonBond, you can refinance your Parent PLUS loans to possibly get a vastly more affordable rate. In fact, CommonBond’s highest rate is still considerably cheaper than the 7.08% Parent PLUS rate – and there are no origination or prepayment fees.

Plus, when you refinance, you can sew together multiple loans into one, which means you’ll only have to manage one loan and one monthly payment. You can also pick new terms for your loan when you refinance. For example, if you want to repay your debt more quickly, and thus save even more money, you can opt for a shorter repayment term (such as a 5-year loan). On the other hand, if you’d like to manage your monthly payment, you could switch to a 10 or 15-year loan in order to better balance your monthly budget.

Dropping your rate by even one percentage point through refinancing can save parents thousands of dollars. For instance, if a couple took out a $30,000 Parent PLUS loan this year at 7.08%, they would pay $13,802.93 in interest over a 10-year repayment period. (2) With a refinanced loan at 4.5%, those parents would pay $7,309.68 in interest, almost halving the amount of interest paid in a 10-year repayment period. (3)

 

A word to the wise

Refinancing with a private lender is not always right for every borrower. In some rare cases, the government can forgive student debt. You are only eligible for this program if you work for a 501(c)(3) non-profit for 10 years and have made 120 on-time payments on your government loans. Government loans also offer income-based repayment programs, where you can apply to pay a lower monthly rate if your income is below a certain threshold.

All said and done, do your homework to understand what makes the most financial sense for you. If you’re not sure where to start, give our award-winning Care Team a ring at 800-975-7812 or send them a note at care@commonbond.co. They’ll point you in the right direction.

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Read the original version of our article above on Forbes.com.

(1): https://studentaid.gov/understand-aid/types/loans/interest-rates

(2): Including loan fees of 4.24%. Assume 4 total years in college.

(3): There are no prepayment or origination fees to refinance with CommonBond. Assume 4 total years in college.

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