Each year, millions of parents help their children pay for college by taking out federal Parent PLUS Loans. Unlike other loans, which have annual and aggregate borrowing limits, Parent PLUS Loans allow families to borrow up to 100% of the total cost of attendance. And with the highest interest rate of any federal loan — as of 2022, the rate is 7.54% — parents can quickly rack up a substantial amount of debt. Parents looking for relief from their debt may consider loan consolidation. But there are two main types of Parent PLUS Loan consolidation: consolidating with a federal Direct Consolidation Loan and private student loan refinancing. Before consolidating Parent PLUS Loans, make sure you understand the differences between these two options.
Can You Consolidate Parent PLUS Loans?
Parent PLUS Loans have higher interest rates than other federal loans, so you may be looking for ways to lower your interest rate or reduce your monthly payment. There are two options for consolidating Parent PLUS Loans:
- Federal consolidation: Student loan consolidation is a process where you apply for a federal Direct Consolidation Loan. The new loan pays off the Parent PLUS Loan, and you’ll know to have a federal Direct Consolidation Loan instead.
- Student loan refinancing: If you opt for student loan refinancing, you take out a loan from a private lender and use it to pay off your Parent PLUS Loans. After that, your
Federal Direct Consolidation
Federal student loan consolidation can be used to consolidate your federal direct loans, including Parent PLUS Loans. After you consolidate, your loans are still held by the U.S. Department of Education, and you can utilize the benefits and protections that apply to federal loans.
Benefits of Direct Consolidation Loans
- You can qualify for income-driven repayment (IDR) plans: Parent PLUS Loans aren’t eligible for IDR plans, which extend your loan term and limit your monthly payments to a percentage of your discretionary income. However, you can qualify for an IDR plan if you consolidate your debt with a Direct Consolidation Loan. Afterward, you can enroll in income-contingent repayment.
- You can simplify your payments: If you have multiple Parent PLUS Loans, you can consolidate your debt into one easy-to-manage loan.
- You can extend your repayment term: With a Direct Consolidation Loan, you can select a new loan term as long as 30 years. With a longer term, you can significantly reduce your monthly payments.
Cons of Direct Consolidation Loans
- Your interest rate doesn’t change: Direct Consolidation Loans don’t allow you to qualify for a lower rate. Instead, your rate is based on the weighted average of your existing Parent PLUS Loans.
- You may pay more in interest: If you select a longer repayment term to get a lower payment, you’ll likely pay much more overall due to the amount of interest that accrues.
- You’ll lose discounts: When you consolidate your Parent PLUS Loans, you may lose interest rate discounts and other benefits, such as on-time payment discounts from your current loan servicer.
Requirements for Parent PLUS Loan Consolidation
Parent PLUS Loans are one of the federal loan types eligible for Direct Loan Consolidation. To qualify for a Direct Consolidation Loan, the loans must be in repayment or the loan grace period.
How to Apply for a Direct Consolidation Loan
You can apply for a Direct Consolidation Loan by filling out a paper application and sending it in through the mail, or you can complete an online application. Whichever method you choose, there is no fee for consolidating Parent PLUS Loans. To apply online, follow these steps:
- Visit StudentAid.gov: The U.S. Department of Education operates the official site where you can fill out and submit the Direct Consolidation Loan application.
- Enter your information: The application will prompt you to enter your personal information, the names of two references that don’t live with you, and details on the loans you want to consolidate. It will also ask you what payment plan you want. The application takes about 30 minutes to complete.
- Sign the agreement: Once you’ve filled out the application, the site will ask you to sign the loan repayment agreement.
Private Student Loan Refinancing
Unlike federal loan consolidation, student loan refinancing is a tool you can use to potentially save money or pay off your Parent PLUS Loans faster. With Parent PLUS Loan refinancing, you work with a private lender like ELFI to take out a new loan for the amount of your existing debt.*
Benefits of Refinancing Parent PLUS Loans
- You can transfer the loan to a child: While Parent PLUS Loans cannot be transferred to a child, there is a workaround; if your child meets the lender’s eligibility requirements and submits a refinancing application, you can transfer Parent PLUS Loans to them, and they will take over responsibility for the loans.
- You can save money: Should you refinance Parent PLUS Loans? Parent PLUS Loans can have high-interest rates, and refinancing can help you reduce those rates. Unlike Direct Consolidation Loans, which base the interest rate on your current rates, refinancing can help you qualify for a lower rate. If you have good credit, you could get a lower interest rate and save thousands over the life of your loan.
- You can simplify your payments: Refinancing Parent PLUS Loans allows you to combine your different loans into one, making it easier to keep track of your payments.
- You can choose a new loan term: When you refinance your Parent PLUS Loans, you can select a new loan term; lenders usually offer terms between five and 20 years. If you choose a longer term, you can get a lower payment, but you may pay more in interest over time.
Cons of Refinancing Parent PLUS Loans
- You aren’t eligible for IDR plans: Once you refinance federal student loans, including Parent PLUS Loans, they become private loans and are no longer eligible for federal IDR plans.
- You lose eligibility for loan forgiveness: If you plan on applying for loan forgiveness for Public Service Loan Forgiveness, refinancing will transfer your loans to a private lender, and you’ll no longer qualify for PSLF.
- You need good to excellent credit to qualify: Not everyone will qualify for refinancing, nor may they qualify for a lower interest rate. In general, you need good to excellent credit to qualify for student loan refinancing.
Requirements for Refinancing Parent PLUS Loans
Although requirements for Parent PLUS Loan refinancing vary by lender, you generally need to meet the following criteria:
- Credit: Lenders require borrowers to have good to excellent credit. ELFI requires a credit score of 680 or higher.
- Income: You must meet the lender’s income requirements. For example, ELFI requires an income of $35,000 or more.
- Loans: You must have at least $10,000 in Parent PLUS Loans, and the loans must be in repayment or in the loan grace period.
How to Refinance Parent PLUS Loans
To refinance your Parent PLUS Loans, follow these steps:
- Identify the loans you want to refinance: With Parent PLUS Loan refinancing, you can combine Parent PLUS Loans with private parents loans that you may have. You can decide to refinance some or all of your loans.
- Collect documentation: Lenders will request copies of your tax returns, pay stubs, and loan statements, so you can save time by gathering those documents ahead of time.
- Request quotes: Rates and terms can vary between lenders, so shop around and request quotes from several lenders. With ELFI, you can get a rate quote with a soft credit check.
- Submit the application: Most lenders allow you to apply online. Fill out the requested information, including your contact information and details about your income and employer.
- Sign agreement: Once the application is complete, sign the application and consent to a hard credit inquiry, which can cause your credit score to drop by a few points.
The lender will review your information and decide on your application. Continue making payments on your existing loans until you receive a confirmation that your loans have been paid in full.
Refinance Your Parent PLUS Loans with ELFI
Parent PLUS Loans can be an expensive form of debt, but refinancing is one way to tackle them. When you refinance Parent PLUS Loans with ELFI, you can select a new loan term and choose either a fixed-rate or variable-rate loan. And with a lower interest rate, you could save a significant amount of money.
