How to Consolidate Parent PLUS Loans

Parents can refinance their PLUS Loans with a private lender to get a lower interest rate or consolidate them with the federal government to get a lower monthly payment and qualify for loan forgiveness programs.

There are two ways to consolidate Parent Plus Loans: you can use the Federal Direct Consolidation Loan Program that the Education Department provides or get a private lender to refinance your parent loans. Keeping your loans with the federal government won’t change your interest rate, but it may result in a lower monthly payment and eligibility for various loan forgiveness programs. If you refinance with a bank or credit union, you may be able to save money by lowering your interest rate and getting shorter loan repayment terms.

The right choice for you depends on several things, including your loan balance, credit score, personal finances, and whether your loans can be forgiven.

Here’s everything you need to know about Parent PLUS Loan consolidation.

Parent borrowers can consolidate their loans for free at StudentAid.gov, the Federal Student Aid website.* Unlike when you borrow a Parent PLUS Loan, the U.S. Department of Education doesn’t do a credit check for an adverse credit history. The department will let you consolidate with bad credit. In fact, it will only deny your application if:

• Your loans are in default, and a wage garnishment is in effect.

• You’re attempting to consolidate a Direct Consolidation Loan with no additional loans to add to it.

The new loan will have a subsidized and unsubsidized balance and a fixed interest rate based on the weighted average of the loans included in the consolidation. It will also have a longer repayment term, which can help if you need a more affordable student loan payment.

* You can also use a paper application to consolidate.

Related: What Happens to Parent PLUS Loans When You Die?

Reasons to consider consolidation:

• You’re struggling to keep up with monthly payments.

• You work full-time for the government or a nonprofit organization.

• You’ve made payments or been in forbearance or deferment for years.

Standard Repayment Plan limitations:

Loans taken out for your child’s education aren’t automatically eligible for income-based repayment options. Instead, they’re placed in the Standard Repayment Plan, which pays off the debt in a decade. Depending on the amount you borrowed, this short term can make payments unaffordable.

Consolidation benefits:

Consolidating may help reduce your monthly payments and improve your loan standing. Parent PLUS Loans become eligible for the income-contingent repayment plan once consolidated into a Direct Loan. This plan caps your bill at 20% of your discretionary income and extends the loan term over 25 years, depending on the loan amount.

Loan forgiveness programs:

• Public Service Loan Forgiveness (PSLF): Forgives your remaining balance tax-free after 10 years of public service work and qualifying payments on your loans. Check if Parent PLUS Loans are eligible for PSLF.

• Income-Driven Repayment Plan Forgiveness: Clears your remaining student loan debt after at least 20 years of repayment.

• Parent PLUS Loan Forgiveness Retirement: Another opportunity to reduce your loan burden over time.

Biden administration’s temporary expansion:

The Biden administration temporarily expanded this program, granting forgiveness credit to borrowers who never moved to the ICR plan or were in forbearance or deferment for years. Some borrowers must begin the consolidation process before the end of 2023, to qualify for the income-driven repayment plan account adjustment.

Alternative: Double Consolidation Loophole

By leveraging the double consolidation loophole, you can access more favorable repayment options like REPAYE, PAYE, or IBR. This strategy can significantly reduce your monthly payments and potentially lead to loan forgiveness, offering substantial financial relief.

Consolidating your Parent PLUS Loans is a great way to get a lower interest rate and more manageable monthly payments. But it comes at a cost. You’ll give up protections that are only available to federal student loans. Income-driven plans and student loan forgiveness programs aren’t available to borrowers with private student loans.

As a student loan lawyer, I often advise my clients to consider refinancing Parent PLUS Loans with a private lender when the ratio between their student loan debt and income is 1.25:1 or less. When the ratio is that close, they’d likely either pay the loans off before they’d ever be forgiven. If that’s true, the smartest financial move may be to try and save as much money as possible by getting a better interest rate and paying the loans off as quickly as possible.

During the application process, compare lenders’ rates and repayment terms. Options range from a fixed interest rate to a variable rate, with 20-year or shorter terms. A fixed-rate loan offers predictability. Your rate is locked for the life of the loan. A variable rate may attract you with a better starting rate, but it may grow over time as rates rise. If this occurs, your payment amount may skyrocket. (Keep in mind that you can refinance your loans a second time if that happens.)

Related: How Many Times Can You Refinance Student Loans?

When you’re ready to explore student loan refinancing, use an online marketplace like Credible to compare rates and terms with multiple lenders.

The child you borrowed the Parent PLUS Loans can’t consolidate the loans into their name with the Educaiton Department. But they can transfer the parent loans into their name by refinancing them with a private lender.

Something to keep in mind is that, unlike a Direct Consolidation Loan, refinancing requires a clean credit history and income. If your child doesn’t have a good credit score and their personal finances in order, they might need a cosigner to get the best interest rate and repayment terms.

Related: Can You Transfer a Parent PLUS Loan to the Student?

Similarly, if you’re divorcing, refinancing can ensure that the parent who agrees to accept responsibility for the debt gets the bill each month. Otherwise, the parent who signed the promissory note will be hounded by the loan servicer for payment.

Related: Who’s Responsible for Parent PLUS Loans in a Divorce?

Consolidation won’t change the interest rate Parent PLUS Loan borrowers pay. But it can help them access better student loan repayment options, forgiveness opportunities, and loan cancellation benefits.

Refinancing your federal parent loans with a private lender may be the best option if you have job security, a strong credit score, and a modest student debt-to-income ratio. It will reduce the amount of interest that accrues, giving you a better chance of paying off the loans promptly.

Let’s talk if you want help figuring out if Parent PLUS Loan consolidation is right for you. Schedule a call so we can review your loans and develop the right strategy for your situation.

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