While many borrowers have taken out loans for themselves, there’s also a growing number of people that take out loans on behalf of their child or co-sign a loan with their child or another family member. This article will outline different options for parents, grandparents, or caregivers that have their own loans on behalf of others.
Federal Loans:
One of the fastest growing federal loans is a Parent PLUS Loan. A Parent PLUS Loan is taken out in the parent’s name but on behalf of their child’s undergraduate education.
Unlike most federal loans, Parent PLUS Loans aren’t eligible for loan forgiveness programs. To make them eligible for loan forgiveness programs, they must be consolidated into a Direct Loan.
It may sound like an easy solution, but consolidation is not always the best option for all borrowers. A few things to keep in mind before choosing to consolidate your loan:
- Once consolidated, Parent PLUS Loans are only eligible for an Income Contingent Repayment (ICR) Plan. Before a borrower consolidates or enrolls in an ICR, the Savi tool will calculate the estimated monthly payment on the new plan.
- If you are consolidating to take advantage of Public Service Loan Forgiveness (PSLF), your payment count will be a weighted average of payments made before consolidation. You can read about weighted averages here: https://bysavi.zendesk.com/hc/en-us/articles/31467536459027-Consolidation-and-It-s-Effects-on-PSLF-and-IDR-Forgiveness-Progress
Once a Parent PLUS Loan is taken out, it will stay in the parent’s name and cannot be transferred to the child.
If you don’t want to consolidate your Parent PLUS Loan into a Direct Loan, you can enroll in the Standard Repayment Plan, Extended Repayment Plan, or Graduated Repayment Plan.
On the Standard Repayment Plan your monthly payments may be slightly higher than payments made under other plans, but you’ll pay off your loan in the shortest time. On the Extended Repayment Plan, your monthly payments will be lower than the Standard Repayment Plan, but you will make payments for a longer period of time. Lastly, on the Graduated Repayment Plan, your monthly loan payment will start low, but increase every two years.
To learn more about these repayment plans, visit https://bysavi.zendesk.com/hc/en-us/articles/360045635574-What-is-an-Income-Driven-Repayment-Plan-IDR.
Private Loans:
If you refinance a federal loan, it will be changed into a private loan. Once this happens, your loan is no longer eligible for any loan forgiveness programs, and you’ll work with a private lender rather than a federal servicer.
As a parent, you may have refinanced your federal loan to receive a lower interest rate or lower monthly payment. If you have a private loan, Savi can help you explore refinancing options to receive a lower interest rate or lower monthly payment. There are pros and cons to refinancing, but if you don’t work in public service and are looking for a lower monthly payment, refinancing could be a solution for you.