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Private Student Loan Refinancing

Another option involves refinancing the Parent PLUS Loan into a private student loan. In effect, this transfers the Parent PLUS Loan into the student’s name, but it involves a new loan with new terms and conditions. The student is then responsible for repayment of the new loan and the proceeds from the new loan pay off the Parent PLUS Loan. If a child is willing and financially able, this can greatly reduce the parents’ debt burden.

Only a handful of lenders currently offer this type of refinancing, including Earnest, Laurel Road and SoFi. But, other lenders might offer it as an option in the future.

The interest rates may be much higher than the fixed rates on a Parent PLUS Loan, since the child will be refinancing the loan on their own, without a creditworthy cosigner.

Borrowers should be aware that refinancing federal loans into private loans results in a loss of federal protections. This means that options like longer loan deferments and forbearances, loan forgiveness and death/disability discharges may no longer be available.  

It can also place a financial strain on recent graduates. Since refinancing a Parent PLUS loan into the child’s name will increase the child’s debt burden, it will be more difficult for the child to obtain a mortgage, contribute to their retirement or save for college for their own young children.

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.




Clearing Up Confusion

A student may feel it’s their moral duty to repay a Parent PLUS Loan. But they’re by no means legally required to do so. At the end of the day, it’s up to mom and dad.

However, there are some workarounds where a child pays at least a portion. Understanding the different options along with the pros and cons of each is critical for making the right decision.

See also: 14 Things That Could Happen If You Don’t Pay Your Student Loans


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