Many families help their children pay for college. The Federal Student Aid Data Center reported that 3.1 million borrowers currently have Parent PLUS Loans; combined, those borrowers owe $107.6 billion.
The Parent PLUS Loan interest rate is the highest of all federal loans, so finding ways to accelerate repayment is vital to saving money. Continue reading to learn how to pay off Parent PLUS Loans faster and reduce interest charges.
How to Pay Off Parent PLUS Loans Faster: 7 Ways
Parent PLUS Loans are federal loans parents can take out in their names to pay for a child’s undergraduate education. The Parent PLUS Loan interest rate is 8.05%, the highest rate since the Federal Direct Loan program launched.
If you have outstanding parent student loans, these seven tips can help you pay down your debt faster.
1. Make Payments While the Student Is In School
With Parent PLUS Loans, you can defer your payments while your child is in school and for six months after graduation or leaving school. However, interest accrues on the loan during that deferment period, and the interest will be capitalized — added to the loan principal — once the loan enters repayment, so deferring payments can increase your overall repayment cost.
If possible, make payments while your child is in school. If you opted for deferment, paying even a small amount each month, such as $25 or $50, can reduce the amount of interest that accrues and help you pay off your loans faster.
2. Apply for Public Service Loan Forgiveness (PSLF)
Many people don’t realize that Parent PLUS Loan borrowers are eligible for PSLF, a federal loan forgiveness program for employees of non-profit organizations and government agencies. If you work for a qualifying employer full-time for at least ten years and make 120 qualifying monthly payments, the government will forgive your remaining loan balance.
However, parents have to take extra steps to qualify for PSLF. Parents must consolidate with a Direct Consolidation Loan and enroll in Income-Contingent Repayment (ICR) to be eligible for PSLF.
You can apply for a Direct Consolidation Loan online.
3. Transfer Loans to Student
If your child has graduated and is now working and earning a steady income, one way to get rid of your loans is to work with your child to transfer the loans into their name.
The government doesn’t allow the transference of Parent PLUS Loans with the Direct loan system, but it can be done through private student loan refinancing. With this process, your child applies for student loan refinancing independently for outstanding Parent PLUS Loans.
If approved, the loans convert into private loans, and the child takes over responsibility for the loan. The Parent PLUS Loans will show up as paid in full on the parent’s credit report, and the parent has no more obligation to repay the loan.
This approach is best for borrowers with children in high-paying careers that can comfortably afford the loan payments. And it’s especially beneficial for parents that struggle to qualify for other forms of credit, such as a mortgage or car loan, because of the Parent PLUS Loans since transferring the debt will make it easier to qualify for loans.
4. Make Extra Payments
If you’re researching how to pay off Parent PLUS Loans faster, one of the best ways is to make extra payments. You don’t have to have tons of extra cash handy; even small additional payments can make a significant difference.
For example, say you had $20,000 in Parent PLUS Loans at 8.05% interest. With a standard repayment plan, your monthly payment would be about $243. If you increase your monthly payments by $25, you’d pay off your loans 16 months earlier and save over $1,300.
Increase your payments by $50; the results are even more dramatic. You’ll be out of debt 28 months sooner and save over $2,300.
| Original Loan | Payment + $25 | Payment + $50 | |
| Payment Amount | $243 | $268 | $293 |
| Time in Repayment | 120 months | 104 months | 92 months |
| Total Interest | $9,194 | $7,834 | $6,834 |
| Total Repaid | $29,194 | $27,834 | $26,834 |
| Total Savings | N/A | $1,360 | $2,360 |
5. Take Advantage of Employer Repayment Assistance Programs
As a parent, you may be eligible for help repaying your Parent PLUS Loans from your employer. According to the Employee Benefit Research Institute, 49% of employers offer or plan to provide student loan repayment assistance programs soon.
If your company has an employee loan repayment program, your employer will match your payments up to a monthly or annual maximum, helping you get rid of your debt more quickly.
6. Sign Up for Automatic Payments
Sign up for automatic payments to lower the Parent PLUS Loan interest rate. All federal Direct loans, including PLUS Loans, are eligible for a 0.25% autopay discount. After signing up, more of your payment will go toward the principal and you’ll save money.
7. Refinance Your Parent PLUS Loans
PLUS Loans have the highest interest rate of any federal loan. If you have good credit and steady employment, you may be able to save money and accelerate your repayment by refinancing your loans. With student loan refinancing, you may qualify for a lower rate so more of your payment goes toward the principal rather than interest.
The savings from refinancing parent student loans can be significant; for example, let’s say you had $20,000 at 8.05% interest and a 10-year term. If you refinanced your loans and qualified for a 10-year loan at 6.5% interest, you’d save over $1,900 over the life of the loan.
| Original Loan | Refinanced Loan | |
| Interest Rate | 8.05% | 6.5% |
| Monthly Payment | $243 | $227 |
| Total Interest | $9,194 | 6.5% |
| Total Repaid | $29,194 | $27,251 |
| Total Savings | N/A | $1,943 |
Remember that refinancing will transfer your Parent PLUS Loans to a private lender, and you’ll no longer be eligible for federal benefits or repayment options like PSLF, income-driven repayment, or federal forbearance. However, that tradeoff may be worth it for some borrowers due to the cost savings from refinancing.
Use the student loan refinance calculator to determine how private Parent PLUS loan consolidation would affect your monthly payments and overall repayment cost.
Refinancing Parent Student Loans With ELFI
To pay off your Parent PLUS Loans faster, utilizing student loan refinancing can be an effective strategy. ELFI allows borrowers to refinance federal and private parent student loans, and you can choose either a fixed or variable interest rate. Loan terms range from five to 10 years, so you can pick a time that fits your budget and financial goals.
Use the Find My Rate tool to get a quote without damaging your credit score.
The post How to Pay Off Parent PLUS Loans Faster appeared first on Education Loan Finance.
