4) Parent PLUS Loans
Parent PLUS loans are the oddball of federal loans. As I outlined in my previous article, they do not qualify for the best income-driven repayment plans. Many parents also want to shift the responsibility of these loans to their children. As such, you never want to consolidate these loans with other federal loans.
One great option is to refinance these loans through a private lender. It’s possible to obtain a lower interest rate, and parents can shift the responsibility of the loan to a child.
Who Should Refinance Their Student Loans?
Because refinancing can take a little bit of time and effort, it doesn’t make sense for everyone. To determine if refinancing is the best solution, consider your debt repayment schedule and compare with the categories listed below.
Demolish your debt within 2 years
This category includes individuals with low levels of debt, and individuals whose number one priority is getting out of debt FAST. If this category describes you, consider doing nothing except making payments on your loans. Your primary focus should be getting out of debt quickly.
Vanessa and I were part of this category. We made it our mission to become debt-free in our first year of marriage. We didn’t mess with consolidating or refinancing our loans. Instead, we focused on making money and cutting expenses, so that we could pay down the debt quicker.
You could refinance through a private lender for free, but that does take some time and effort to realize modest interest savings.
Debt-free in 2-10 years
Individuals in this category might have modest levels of debt, and other important life goals that are competing for dollars. Most borrowers fall within this category, and refinancing can be an excellent option here.
If you have subsidized federal loans, you might be able to obtain a slightly lower interest rate through refinancing. If you have private student loans and/or unsubsidized federal loans, refinancing can save you a lot of money over time.
The income-driven repayment plans and loan forgiveness offered on federal loans are much less important here, because those programs require 10, 20, or 25 years of continuous payments. If you want to be debt-free in less than 10 years, you won’t be eligible for those programs.
What’s much more important is obtaining the lowest interest rate possible on your loans. Refinancing is likely the easiest way to lower the rate on your loans and reduce the amount of interest paid.
Debt-free in 10+ years
This category includes many professionals, saddled with years of student loan debt. Some of the income-driven repayment plans and loan forgiveness options should be considered before refinancing. If you want to make the minimum monthly payments (under the income-driven repayment plans) and/or qualify for loan forgiveness, you need to avoid refinancing your federal loans.
If you aren’t interested in the federal repayment programs, or if you have private student loans, you should consider refinancing. Government programs aside, you can likely obtain a lower overall interest rate through refinancing because interest rates are historically low.
How to Refinance Your Student Loans
Hopefully by now, you have given thought to your available options. If you are leaning towards refinancing, I have some suggestions on where to begin.
LendKey – LendKey matches borrowers with more than 300 possible community banks and credit unions. This is unique among online lenders, and results in Lendkey offering the lowest possible interest rates with increased flexibility throughout the process. The network of not-for-profit lenders also results in a higher likelihood of approval, with many of the lenders willing to work with non-traditional borrowers, or those without perfect credit.
LendKey is offering a $100 cash bonus for Cash Cow Couple readers if you refinance a student loan using our link.
Features include:
- Unemployment protection – up to 18 months of paused loan payments while in-between jobs
- Check real refinancing rates in 2 minutes with one form (and no impact on your credit score)
- LendKey charges no origination fees or penalties for making extra or early payments
- Available for undergraduate/graduate and private/federal student loans
- Cosigner release – available after 12 on-time payments
- Variable rates from 2.52% APR (with autopay)
- Fixed rates from 3.25% APR (with autopay)
- 5, 7, 10, 15, or 20 year repayment terms
- Minimum balance to refinance: $7,500
You can continue chasing quotes from other online lenders, but I doubt you will find better rates. In my personal experience, LendKey consistently offers great rates through community lenders, and I haven’t seen any other companies offering lower rates than LendKey.
This article has been republished with permission from Cash Cow Couple.