Parent Plus Loan — UGH!
Hi Terry, I listen to you when ever you are on WGN radio and read your columns as well, when I can.
So I’m 58 and I have a Parent Plus Loan (the worst decision ever made to go this route to finance my two daughters college..ugh) I have been paying on for about 10yrs the current balance is about 75K and my interest rate is 7.9%. Currently I’m paying $800 a month.
My question is what is the best way for me to be able pay this down over the next 5yrs. I can afford to increase my payment a few hundred dollars and put towards the principle but not sure if this is the right way to go.
Through my research I found that there really is no option to refinance or is there?
Thank you for any advice you can offer.
Happy Thanksgiving
Terry Says
You have entered into Plus loan hell! They are the worst loans, because it’s not just the interest rate that never goes down, it’s also the fees when you originate the loan!
This year for new loans the interest rate, which will never change, is 7.08%. AND there is a 4.23% fee! Assuming a 10-year repayment term, a 4% fee is the equivalent of an increase in the interest rate of about seven-eighths to one percentage point!
As you have learned, it is almost impossible to refinance these loans at a lower rate using a private loan.
My advice: Sell something! A car, a second home. Anything. Give up cable! Or refinance your house because although you might not be able to deduct the interest on a home equity loan, since the money is not being used for home improvement, you will still be paying a lower rate! Gather as much money as you can and specify in writing that you want it credited to the PRINCIPAL BALANCE of the loan. Then double check to make sure that is done!
If you have to do it the slow way — adding extra each month — do as much as you can every month. Again, specify that the extra payment goes to the loan principal, and check this is being done. The sooner the better as it will save you a fortune in interest!
