A private consolidation loan, sometimes called a private refinance, is a private student loan used to refinance federal and private education loans.
Carefully consider whether you should refinance a Parent PLUS loan into a private consolidation loan. There are pros and cons of refinancing student loans. You will lose certain benefits if you refinance a federal loan into a private loan. Some of the key considerations include:
Federal Parent PLUS loans generally have lower fixed interest rates than private student loans. However, if you have very good credit, you might be able to qualify for a lower fixed interest rate on a private student loan.
Some private student loan lenders offer variable interest rates that are initially lower than the interest rates on federal loans, providing you with an opportunity to save money if you expect to pay off the private loan before interest rates rise too much.
Private student loans do not offer income-driven repayment plans.
Federal Parent PLUS loans offer more flexible repayment options, such as extended and graduated repayment. Some private student loans may not allow the borrower to change repayment terms.
Federal Parent PLUS loans offer longer deferments and forbearances than private student loans, such as the economic hardship deferment.
Private student loans do not offer loan forgiveness programs such as teacher loan forgiveness or public service loan forgiveness.
Federal Parent PLUS loans offer other opportunities for loan cancellation, such as the death and disability discharges, and closed school discharges. Only about half of private student loans offer a death and disability discharge.
Follow these steps to refinance your Parent PLUS loans:
Identify all of the Parent PLUS loans (and other federal and private education loans) that you want to refinance. Make a list that includes the type of loan, the name of the lender, the loan ID number and the current loan balance.
Calculate the total amount you will refinance by summing the current loan balances. Some lenders have limits on the amount of education loan debt that they will refinance.
Apply for a refinance with this lender. It usually takes less than half an hour.
Risks of Refinancing a Parent PLUS Loan
There are several risks associated with refinancing a federal loan into a federal consolidation loan or private refinance:
A refinance or consolidation loan replaces multiple loans with a single loan. This will prevent you from targeting the highest-rate loan for quicker repayment, which can sometimes save you more money than a refinance.
Private student loans do not have the same terms and conditions as federal education loans. Consider the benefits that you will lose if you refinance a Federal Parent PLUS loan into a private education loan.
A refinance or consolidation loan is a permanent change that cannot be reversed. There’s no going back. So, be sure that this is what you want to do.
Refinancing a student loan could possibly lower your interest, saving you money. Consider the pros and cons of student loan refinance before you decide. Refinancing federal loans into a private loan means a loss of all of the federal loan benefits – income-driven repayment options, potential for loan forgiveness, possible widespread loan forgiveness, generous deferment period if you lose your job or have an economic hardship, possibly loans that are subsidized, and potential widespread forgiveness.
Credible allows you to compare rates from 10 lenders without impacting your credit for free. Splash Financial is a student loan refinance marketplace that matches you with a lender with a low interest rate.
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