Wait, parents owe $ 100 billion in student loans?

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Students aren’t the only ones who owe student loans. Parents now owe nearly $ 100 billion in student loans.

Here’s what you need to know – and what to do about it.

Student loans: Parents

the latest statistics on student loan debt show that there are over 44 million borrowers who collectively owe $ 1.6 trillion in student loan debt in the United States alone. According to Make Lemonade, student loan debt is now the second highest category of consumer debt – behind only mortgage debt – and highest than credit cards and auto loans. There are 3.6 million borrowers who collectively owe $ 96.1 billion in Parent PLUS loans. This amount does not include Parent Loans, which can be borrowed from private lenders. The fact that parents carry student loan balances for their children’s education has created financial pressure for many parents, who may depend on Social Security and have other limited sources of income. Some parents even work longer to pay off their student loans.

How does a Parent PLUS loan work?

A Parent PLUS loan is a federal loan from the United States government that a parent borrows on behalf of a dependent undergraduate student to finance the dependent’s education. For the 2019-2020 academic year, the interest rate on a Parent PLUS Loan is 7.08% and the one-time fee is 4.236% of the amount borrowed. First, like all federal direct loans, every borrower receives the same interest rate regardless of their credit rating. Therefore, a borrower with an excellent credit rating might be charged a relatively higher interest rate than they might receive with a private lender through a parent loan. Second, unlike Federal Student Loans, Parent PLUS loan borrowers are limited to Income-Conditional Repayment (ICR) as their only choice for income-based repayment.

So what can parents do to pay off Parent PLUS loans faster? Here are two options to consider.

1. Transfer the Parent PLUS loan to your child

You can “transfer” your Parent PLUS loan indirectly through Parent PLUS loan refinancing, which is similar to refinancing a student loan. The result is a lower interest rate and your child becomes financially responsible for the new student loan. To get approval, a private lender assesses your graduate child’s financial and credit profile. This is to your advantage as you may be retired or near retirement and your income may be limited. When you refinance Parent PLUS loans, the graduate child becomes the sole borrower and the parent is effectively released from any financial obligation.

2. Refinance Parent PLUS Loans

If you don’t want to transfer your Parent PLUS Loan to your child, you can refinance a Parent PLUS Loan from a private lender, get a lower interest rate, and save money. The result is a new loan with a lower interest rate and lower monthly payment, which helps lower interest costs. To get Parent PLUS refinance approval, you need a stable, recurring income, a current job, good monthly cash flow, and a low debt-to-income ratio.

This student loan refinance calculator shows you how much money you can save by refinancing your Parent PLUS loans.

For example, suppose you have a Parent PLUS loan of $ 70,000 at an 8% interest rate and you can refinance with an interest rate of 3%. You could save $ 173 per month and $ 20,804 in total.

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