By Alison Miller, CommonBond
What are the benefits of refinancing your Parent PLUS loans? The first is the opportunity to save thousands of dollars by getting a lower interest rate. The second is the peace of mind that comes with being able to choose the right loan term and rate option for your finances, especially if your situation has changed since you first borrowed your Parent PLUS Loan. Here are a few questions to determine whether refinancing and consolidating are right for you.
1. Is your Parent PLUS Loan at around 7% or above? Since 2006, the average rate for the Parent PLUS loan has been about 7.6%. The student lending landscape has changed, however, since the financial crisis, with new private lending platforms offering better options for parents with high rates. At CommonBond, for example, our fixed rates start at 3.74% APR (with autopay) and variable rates start at 1.94% APR (with autopay). Depending on your loan balance, dropping your rate by even one percentage point could save you thousands.
2. Do you make multiple monthly payments? If you're repaying several Parent PLUS loans, refinancing can save you the hassle of juggling many bills. You can refinance and consolidate these student loans through one lender, giving you just one loan with one low interest rate to repay each month. With many lenders, you'll also be able to take advantage of a rate discount when you sign up for automatic payments (also known as ACH). This typically amounts to 0.25% off your interest rate, simply for using autopay.
3. Do you anticipate needing the Federal borrower protections that come with your Parent PLUS loan? Parent PLUS loans are eligible for income-contingent repayment if you consolidate them into a Federal Direct Consolidation Loan. This feature could help keep your monthly payments low but means that you're still accruing interest at your current rate. If you're presently in need of this feature or want to stay eligible for public service loan forgiveness, then consolidating and refinancing your federal loans with a private lender might not be for you. (You can still consolidate your federal loans through the government in order to pay just one monthly bill, but your rate will be a weighted average of your existing interest rates, so there's no real savings opportunity.)
How can you tell if it's worth it to give up your federal benefits and refinance to a lower rate? There's no hard and fast rule, but if you're not going to use the benefits that come with federal loans, you could opt for private loans to save money on interest payments through refinancing. (And, contrary to popular belief, there are no penalties for prepaying your student loans with a reputable private lender.) Additionally, by refinancing with certain private lenders, like CommonBond, you may be able to transfer your Parent PLUS loan to your child.
If you have any questions at all about your loan situation, get in touch with our Care Team at care@commonbond.co or give us a call at 800-975-7812, and we'll be happy to help.
Alison Miller is Email Marketing Manager at CommonBond, a student lending platform that provides a better student loan experience through lower rates, superior service, a simple application process, and a strong commitment to social impact.