Repayment Options for Parent PLUS Loans
Struggling to manage parent PLUS loans while pursuing other financial goals? Refinancing with a private lender could be a viable solution, offering lower interest rates and more flexible repayment terms. But, it's essential to understand the eligibility requirements and potential consequences before making a decision.
Eligibility Requirements for Private Refinancing
To qualify for private refinancing, you typically need a credit score of 650 to 680, depending on the lender. For instance, ELFI requires a credit score of 680 or higher, while Sofi asks for good credit. Other lenders usually ask for a minimum credit score of 650.
Stable employment and sufficient income are also required. Some lenders, like ELFI, require a minimum annual income of $35,000 or employment status commitments. A credit history of at least 2-3 years is often required by some private lenders, such as ELFI, which demands a minimum credit history of 36 months.
A low Debt-to-Income Ratio (DTI) is important to demonstrate your ability to repay loans. Meeting minimum loan amounts (e.g., $5,000 or $10,000 in student debt) and educational attainment (such as the child having graduated with a bachelor’s degree) are additional criteria if the child is refinancing the loan in their name.
If you don't meet the criteria, applying with a co-signer with better creditworthiness is a common way to improve eligibility and secure a lower rate.
Benefits of Refinancing Parent PLUS Loans with Private Lenders
Refinancing can offer several advantages. It can reduce the interest rate compared to the original federal PLUS loan rate, potentially saving money over time. By refinancing, borrowers can extend the term or reduce payments to better fit their budget.
Some private lenders allow the student to refinance and take over the parent PLUS loan, which can be beneficial when the student has stronger credit and income. Private refinancing may offer flexible repayment terms (e.g., 5 to 20 years) and fixed or variable interest rates depending on the lender.
Important Caveats
It's crucial to remember that once refinanced privately, parent PLUS loans lose federal protections such as income-driven repayment plans, deferment, forbearance, and forgiveness options. To remain eligible for federal income-driven repayment plans like ICR, parents must first consolidate parent PLUS loans into a Direct Consolidation Loan—a federal process distinct from private refinancing.
In summary, refinancing parent PLUS loans with private lenders is an option if you have good credit (usually 650+), stable income, and a low DTI ratio. Refinancing can lower interest rates, reduce payments, and allow repayment term customization but sacrifices federal loan benefits. Applying with a co-signer or transferring the loan to the student can improve chances of approval and terms.
- To qualify for private refinancing of parent PLUS loans, you typically need a good credit score, with most lenders requiring a minimum of 650, but ELFI requires a score of 680 or higher.
- Stable employment, sufficient income, and a credit history of at least 2-3 years are also essential requirements for private refinancing, with some lenders requiring a minimum annual income of $35,000.
- A low Debt-to-Income Ratio (DTI) is important to demonstrate your ability to repay loans, and meeting minimum loan amounts and educational attainment may also be necessary criteria.
- If you don't meet the eligibility requirements, applying with a co-signer with better creditworthiness is a common way to improve your chances of approval and secure a lower rate.
- Refinancing parent PLUS loans with a private lender can offer benefits such as reduced interest rates, extended loan terms, and flexible repayment options, but it's important to remember that doing so will make the loans ineligible for federal protections like income-driven repayment plans, deferment, forbearance, and forgiveness options.
