“Ask Brianna” is a column for 20-somethings or anyone else starting out. I’m here to help you manage your money, find a job and pay off student loans — all the real-world stuff no one taught us how to do in college. Send your questions about postgrad life to [email protected].
This week’s question:
“My parents took out loans to pay for my college education and I feel guilty that they’re still paying them back. How can I help?”
I’m with you. When I got paltry scholarship aid from my dream school, my parents and I took out loan after loan. Throughout college, I don’t think I fully understood that the many thousands of dollars I borrowed were real money. And my parents wanted to do whatever they could to support me. When I realized how much my education actually cost — after I graduated — my throat nearly closed up.
Our dear parents are often taking on significant debt at a time when they should be paying off mortgages, filling retirement accounts and booking bucket-list vacations. And with college costs rising, more of them are doing it. Just 4% of undergraduates’ parents took out federal parent loans, known as PLUS loans, in 1989-90; by 2011-12, nearly 20% had, according to the most recent data from the National Center for Education Statistics.
Help your parents live a little easier — and soothe your conscience — by looking into payment-reduction options or repaying their loans yourself. In certain situations, refinancing the loans in your name is also feasible.
Discuss repayment options
PLUS loans in particular can be difficult to repay. They have higher interest rates than other federal loans and don’t have the same limits on the amount you can borrow. Parents can borrow up to the cost of attendance — which includes tuition and also room, board, books and transportation — after subtracting other financial aid.
“I think they’ve become an easy package filler for these financial aid packages, because this loan is easier to get than a loan in the private market for parents,” says Rachel Fishman, deputy director for higher education policy research at New America, a nonpartisan think tank.
Federal parent loans also come with fewer repayment options than student loans. But your parents can put one or more PLUS loans through the process of federal student loan consolidation. This option turns PLUS loans into a direct consolidation loan, and it could stretch out the repayment timeline and lower monthly payments, Fishman says.
» MORE: Estimate monthly payments using a parent PLUS loan calculator
Consolidating PLUS loans also qualifies them for income-contingent repayment, which decreases parents’ bills to whichever is less — 20% of discretionary income or the amount they would pay over 12 years. This is a particularly good choice if your parents work for the government or at a 501(c)(3) nonprofit. If they do, they can repay the loan on income-contingent repayment for 10 years, then get the remaining balance forgiven through the Public Service Loan Forgiveness Program.
You can step in to help your parents consolidate their loans and sign up for income-contingent repayment at studentloans.gov.
Make payments yourself
Unfortunately, a parent’s federal PLUS loan can’t be reassigned to the student, says Megan Coval, vice president of policy and federal relations at the National Association of Student Financial Aid Administrators. But if you can make room in your budget, consider transferring money to your parents’ bank account each month to lighten their load during repayment.
» MORE: How to pay off student debt fast
If your parents are paying off a private loan they co-signed for you, ask the lender about co-signer release, says Whitney Barkley-Denney, senior policy counsel at the Center for Responsible Lending. That means only you will be legally responsible for repaying the loan. Sallie Mae, for example, allows borrowers who meet credit requirements to apply to release a co-signer after 12 on-time payments post-graduation.
Refinance parent loans with your loan
Student loan refinancing is when a lender pays off your current loans and replaces them with a new, lower-interest private loan. Some of these lenders allow you to refinance parent loans with your own student loans, which results in a single new loan. But the requirements to do so can be a barrier for many; generally, you’ll need solid income from a full-time job and a credit score in at least the high 600s.
This process also means losing access to federal loan protections — including Public Service Loan Forgiveness and repayment plans based on your income — since the refinanced loans turn private.
“I would be very cautious about doing that and only in very, very select situations,” Fishman says.
Confirm your income isn’t likely to change in the near future before refinancing, and that you or your parents can’t take advantage of Public Service Loan Forgiveness.
This article was written by NerdWallet and was originally published by The Associated Press.