What to do if you are carrying debt from multiple student loans

As a parent, you want to do everything you can to help your child succeed. It’s part of the job. That may mean you lent a helping hand by paying for their college with a parent Direct PLUS Loan.

That good deed could leave you juggling multiple student loans — your own and the one(s) you took out for your children. That can be overwhelming. Fortunately, combining and refinancing those loans may simplify your repayment schedule and/or reduce your monthly payments.

Simplifying the repayment schedule

When your child’s federal student loans enter repayment, they may be able to select from a range of repayment options, including extended and income-based repayment plans. However, Direct PLUS loans are not eligible for income-based repayment. Instead, parents can consolidate those with the federal Direct Consolidation Loan program. This enables parents to roll a number of Direct PLUS loans into one income-contingent repayment plan that uses the borrower’s income and family size — as well as the total amount of the consolidated loan — to calculate monthly payments. However, the Direct Consolidation Loan program is only available for Direct PLUS loans. Other loans cannot be consolidated under this program.

The situation gets more complicated when a parent tries to roll their own student loan repayments in with Direct PLUS loan(s) that they took out for their kids. In this case, you can combine your Direct PLUS loan(s) with your own student debt by refinancing with a private lender. In doing so, you waive the right to any of the benefits or features that were available on your original loans, particularly if they were federal loans, which usually offer forgiveness and repayment options (such as extended and income-based repayment plans) that private loans may not offer.

Some experts recommend consolidating Direct PLUS loans separately from your own private student loans to avoid this issue, but it still leaves borrowers with two separate payments each month. For some, having only one combined payment each month is enough reason to refinance. Just make sure you’re comfortable exchanging the federal loan features with those of a private loan.

Note: Some private lenders allow you to refinance your Direct PLUS loans while your child is still in school.

Get a better interest rate

Like other federal student loans, interest rates for Direct PLUS loans are set by Congress, and remain fixed from the date of disbursement until the loan is paid in full. If you decide to consolidate your Direct PLUS loans through the Direct Consolidation Loan program, your new interest rate will be based on the weighted average of the individual loans you’re combining.

Federal student loan interest rates tend to be higher than private student loans; because of this, consolidating your federal student loans through the government could result in a comparatively higher interest rate. When refinancing your Direct PLUS loans or your own student loans with a private lender, your new interest rate is based on your credit score. Having strong credit could mean a lower interest rate, which would lower your monthly payments and ultimately save you money over the life of the loan.

Many private lenders offer a choice of fixed- or variable-rate loans, allowing you to find the option that suits your needs. Always compare the interest rates on your existing loans with the rate on the potential loan before refinancing.

What to remember

Choosing to help your child pay for college is a noble gesture. Don’t let the repayment of parent Direct PLUS loans and your own student loans second guess your decision to help your child succeed. Look into your refinancing options to see if any of the perks appeal to you. It could result in the financial relief you’re looking for.

More information

We are committed to helping you reach your potential by providing personalized solutions. To learn more about the Citizens Education Refinance Loan® and the benefits of refinancing, call 1-877-405-2262 and speak with one of our Student Lending Specialists.