Parents who borrowed to put their kids through college now have several options to refinance their federal PLUS loans, including, in some cases, the ability to transfer their debt to those children.
The situation is a sharp turnaround from the period after the financial crisis, when private lenders fled the student loan market and few borrowers were able to refinance their debt to take advantage of lower rates.
Lending began to thaw in 2012 when a few start-ups, credit unions and banks began offering refinancing to student borrowers, said Andy Josuweit, chief executive of education loan information site Student Loan Hero.
Some of those lenders — including SoFi, CommonBond, Earnest, Citizens Bank and Darien Rowayton Bank — added PLUS refinancing in the past year. PLUS is a low-cost federal loan offered to graduate students or parents of dependent undergrads to pay for post-high school education.
That change seems to have largely flown under the radar of the 3 million parents who have borrowed an estimated $62 billion from the federal PLUS loan program, Josuweit said.
“I don’t think a lot of parents know about it,” he said. “But the odds of getting a refinancing are better if you’re a parent than if you’re a student.”
That is because private lenders are looking for the long career histories, solid credit and proven earning power that parents are more likely to have than their children, said Dan Macklin, co-founder of SoFi, a market-leading San Francisco-based lender that has refinanced $4 billion in education loans since its 2011 launch.
Joe and Christiane Cruz of Washington, D.C. recently used SoFi to refinance four parent PLUS loans that were taken to fund their youngest daughter’s education. SoFi lowered their fixed rate by about 2 percentage points to 5.25 percent, which saves them about $130 a month in interest.
SoFi offers variable rates as low as 1.9 percent and fixed rates starting at 3.5 percent, but most borrowers ultimately get variable rates “in the mid-threes” and fixed rates “in the high 4s or low 5s,” Macklin said.
By contrast, PLUS loans issued this academic year (2015-16) carry fixed rates of 6.84 percent. Rates were 7.9 percent as recently as the 2012-13 academic year.
Like a few other lenders, including CommonBond and DRB, SoFi offers the option to transfer the balance of a parent PLUS loan via a refinance to a creditworthy child, which removes the parent from responsibility for the debt.