Sending your child off to college means you will be making an investment in his or her future in more ways than one. A college degree can come with a hefty price tag these days, and many parents are footing the bill.
Parents now owe nearly $100 billion in loans used for their children’s secondary education. This loan debt represents a significant financial strain on parents who may have limited sources of income or depend on assistance from programs like Social Security. In some cases, parents are actually extending their working years rather than retiring in order to pay for their child’s student debt.
The Far Reach of Student Loan Debt
There are 44 million borrowers who collectively owe $1.6 trillion in student loan debt in the United States alone. Student loan debt ranks higher than both credit cards and auto loans. Student loan debt is the second highest type of consumer debt. The only debt ranking higher that student loans is mortgage debt.
There are millions of people trying to repay their student loans while attempting to find work, make car and/or house payments, and put food on their table. Parents are also a part of the increasing amount of student loan borrowers. They want to give their children the best opportunity to further themselves by sending them to college, but it could come at the risk of creating financial hardships.
Properly managing your loan debt is vital to successfully paying it off without incurring unwanted financial conflict. Here’s what you need to know.
How Parent Plus Loans Work
Parent PLUS loans represent $96.1 billion in debt owed collectively from 3.6 million borrowers, and that does not include Parent Loans borrowed from private lenders. The U.S. government provides federal Parent Plus Loans to parents borrowing on behalf of their dependent children. The interest rate on these loans for the 2019-2020 academic year was 7.08% and there was also a one-time-fee added of 4.23% onto the borrowed amount.
When applying for a Parent PLUS loan, credit scores do not affect the interest rate. Everyone receives the same interest rate, regardless of poor or excellent credit. Private lenders, however, can adjust your interest rate to reflect your credit score.
So, how can parents unsaddle themselves from these loans faster?
- Transfer the Loan to Your Child
You can take steps to pay off Parent Plus Loans quicker. Remember to ask questions about your loans and research what your options are to efficiently repay them. You do not have to be stuck with a repayment plan that may crush you. If your financial situation has changed, inquire about repayment options that may better fit your current circumstances.
The first option is to transfer your loan indirectly to your child graduate through Parent PLUS Loan refinancing. This method is similar to student loan refinancing. By going through this process, the loan will then have a lower interest rate attached to it. Your child will also become responsible for the new student loan.
To get approved, your child’s financial and credit profile will be evaluated by a private lender. You will become absolved of any financial obligation once your child becomes the sole borrower. By allowing a private lender to work with and create a payment method for you child, you will then have a chance to reassess your own financial obligations.
- Refinance at a Lower Rate
You can also refinance your Parent PLUS Loan if you prefer not to transfer the loan to your child. By refinancing you have the opportunity to receive a lower interest rate. By lowering your interest rate, you may lower your monthly payment. There will be requirements you must meet to be approved for Parent PLUS refinancing. It will be necessary for you to have stable and recurring income, current employment, good monthly cash flow and a low debt-to-income ratio.
You may be able to pay off your student loan debt easily and quickly, but there are many people anticipating payment each month hoping they have enough money to make their payment on time. Creating a repayment schedule you can realistically stick to will help you be consistent with your payments. Lowering your interest rate when you can will help you as well. Remember that you are among millions of people figuring out the best way to repay your loans, so you are not alone.