More and more parents are deciding to refinance their Parent PLUS loans in an effort to save money on interest and reduce their overall debt quicker. If you've been wondering about student loan refinancing but aren't sure if it's right for you, below are some reasons why a refinance might be perfect for your particular situation.
1. You Can Pass the Loan to Your Child
If you refinance your Parent PLUS loan with a private lender, many of them will offer the option to refinance the loan in your child's name, provided that your child is on solid financial footing. Whether or not this is right for you will depend on your original agreement with your child. If you told your child that you would pay for their college costs and this is the method you used, then your child might not want to take on the burden of your loans if it will hold them back from some of their own financial goals.
However, if you took out the Parent Plus loan with the understanding that your child would be responsible for paying for his or her education in full one day, then it might be time to bring up the topic. If you are nearing retirement and your child is doing well financially, you might want to bring it up even if you agreed to pay for their education. Your child might be willing to assist you by helping you reduce the debt that's in your name, especially if you want to start to aggressively saving to get ready for retirement.
2. You Can Lower the Amount of Interest You Pay
If you are ready to pay off your Parent PLUS loan or reduce the amount of interest you pay on your loan in total, refinancing could allow you to create a new loan at a lower interest rate. There are many private lenders who specialize in helping student and parents refinance their loans to save them money long term. Even if you lower your interest rate just one or two percentage points, the amount of money you save over the course of your loan repayment could save you thousands of dollars over time. Since the average Parent PLUS loan taken out on behalf of a student is $12,090 according to research by College Board, many parents could greatly benefit from reducing the interest they owe. Luckily, seeking out quotes for a Parent PLUS refinance loan only takes a few minutes, so it's worth it to see what types of interest rates you qualify for.
3. You Can Reduce or Extend the Time Left On Your Loan
You can always reduce the time it takes you to repay a loan by sending in large payments when you can, but sometimes people need more structure than that. If you have a 15-year loan, for example, with 13 years left on it, you can refinance your loan to be a 5, 7, or a 10-year loan. This will make your payments larger than you're used to, of course, but it will also force you to make payments that will help you to pay off the loan quicker. Conversely, if you're experiencing financial hardships and you're having trouble making your Parent PLUS loan payment each month, you can refinance a 15-year loan to a 25-year loan and reduce your monthly payments until you can afford to pay more.
Ultimately, refinancing student loan debt is a great way to place a renewed focus on your debt repayment this year and save yourself money in the process.