Parent PLUS loans are educational loans taken out by the parents on behalf of their student. It makes sense to refinance these loans at the earliest convenience for two reasons. The first is to score a lower interest rate. The second is to shorten the loan term and clear your debt faster.

Here’s everything you need to know about how to refinance a parent PLUS loan.

But first, a look at how parent PLUS loans are different from other federal student loans

How Parent PLUS Loans are Different From Student Loans

Most federal student loans are education loans taken out by the students themselves. Every student borrower is responsible for paying back the money they borrowed while they were in college. Any delayed or missed payment will impact the student’s credit score.

Parent PLUS loans are also federal education loans. They are different from student loans in that they are not taken out by the student. Parent PLUS loans are taken out by parents to help fund their child’s college tuition. The parent in whose name the loan is issued takes on full responsibility of the loan. They are responsible for making the monthly loan payments till the debt is completely cleared. Any delayed or missed payment will damage the parent’s credit score.

2 Approaches to Refinance Parent PLUS Loans

There are two ways to refinance parent PLUS loans.

One way is to refinance the loan in your own name. In this case you continue to be financially responsible for the loan till it’s fully paid up.

The second is to transfer the loan to your child and let them refinance it in their name. In this case, your child takes on responsibility for the remainder of the loan. The federal government does not allow the transferring of any loans. The loan can only be transferred through a private lender and only if your child meets the lender’s requirements. Requirements usually include good credit, steady sufficient income, and a healthy debt-to-income ratio.

Steps to Refinancing a Parent PLUS Loan in Your Own Name

These steps will help you get the best possible rates when refinancing a Parent PLUS loan in your own name:

1. Check your credit history thoroughly. Report any errors that you find and get them corrected. Even a small error can impact your credit score, resulting in you paying a higher interest rate unnecessarily. You’ve taken the trouble to build your credit score, you shouldn’t have to pay the price for mistakes in the report.
2. Shortlist lenders that refinance parent PLUS loans. Not all lenders do.
3. Compare the shortlisted lenders to identify the one that best meets your needs.
4. Use a loan refinance calculator to determine your customized rate with different lenders. This will prevent unnecessary hard credit checks that could hurt your score.
5. Apply for refinancing.

When you refinance in your name, the lender will assess your financial history to calculate a customized rate. The rate will be based on your credit score, employment, income, current debt obligations, monthly cash flow, and debt-to-income ratio.

Since the refinanced loan is issued in your name, you’re responsible for the monthly payments for the life of the loan. If you miss any payment, it will hurt your credit score.

Steps to Refinancing a Parent PLUS Loan in the Student’s Name

There are several reasons why a parent may want to transfer a PLUS loan to the student. One big reason is to shift the responsibility to the child, especially after they’ve started earning a steady income. In this case, the child’s strong financial credentials may qualify them for a better interest rate than the parent would get. Another benefit is that it helps the student to get started with building their own credit history.

The steps are the same as in the earlier scenario, with one difference. The student will become the sole borrower of the refinanced loan. The lender will evaluate the student’s financial assets to calculate a customized interest rate. The student takes on responsibility for the payments on the refinanced loan. Any missed or delayed payments impacts the student’s credit score.

FAQs on Refinancing Parent PLUS Loans

Here are a few of the most common questions when it comes to refinancing parent PLUS loans.

Is it better refinance parent PLUS loans in my own name or my child’s name?

It depends on your financial situation. If your child is gainfully employed and qualifies for a lower interest rate then you, it makes sense to refinance in their name. Doing this will also help them boost their credit score, while freeing up your finances.

Should I choose a short or long repayment term when refinancing a parent PLUS loan?

A shorter repayment term will help you save the most money by way of accrued interest. The shorter the term, the more you’ll save. But it does involve increasing the monthly payments. If you can afford the higher monthly payments, go for the shorter repayment term.

A longer replacement term can be a life-saver if you’re struggling to meet your monthly payments. Extending the term spreads the payment over more months, reducing the monthly payments. This can cost you more in accrued interest but that’s definitely better than the risk of defaulting on your loan.

Are there any downsides to refinancing parent PLUS loans? 

Yes, there is one downside. Parent PLUS loans are federal education loans. They come with certain protections such as income-based repayment plans and teacher forgiveness. When you refinance a PLUS loan, it gets converted to a private education loan and loses all benefits associated with the original loan. However, this only matters if you’re pursuing forgiveness. If you are, it’s important to weigh the pros and cons of both options before making a decision. Keep in mind that refinancing is irreversible.