To parent dentists with parent PLUS Student Loans: Should you transfer student loan debt to your child?
Editor’s note: This is the seventh article in a fall financial series of New Dentist Now blog posts from Darien Rowayton Bank, which provides student loan refinancing and is endorsed by the American Dental Association. Qualifying ADA members receive a 0.25 percent rate reduction to DRB’s already low rates for the life of the loan as long as they remain ADA members. View rates, terms and conditions and disclosures at student.drbank.com/ADA.
Every parent wants the best for their children. This desire leads many parents to help pay for their kids’ college education. Unfortunately, this well-intentioned instinct is leaving more and more parents saddled with student debt as they enter retirement. Dentists are not exempt from this trend, as many are still paying back their own dental school loans by the time their kids start thinking about college.
According to the LIMRA Secure Retirement Institute, retirees today have six times more student-loan debt than they did in 1989. People between ages 55 and 64, known as pre-retirees, have even more education debt—estimated on average to account for 30% of their total installment debt, or around $8,000. Dentists may have even more, considering that the average new dentist graduates dental school more than $241,000 in debt. Still, if you’re nearing retirement, chances are that the majority of student loan debt on your plate is from loans you took out to pay for your kids’ undergraduate education.
You’re Not Stuck With Your Parent PLUS Loan
If you helped pay for your kids’ education through loans, it’s likely that you took out federal Parent PLUS loans. These loans typically offered better rates and payback options than private student loans. However, neither the interest rate nor payback options on Parent PLUS loans are as attractive today as they once were. And Parent PLUS loans technically cannot be transferred to the child—as the borrower, you’re responsible for paying off the loan.
There’s good news though: Not only can you refinance the loan in your own name to a lower rate, but Parent PLUS loans can also be refinanced under your child’s with a few refinancing student lenders. Your children must apply and demonstrate that they are financially stable enough to pay back the loan. If approved, your child assumes the debt, easing your financial burden and allowing you to focus on your retirement security.
3 Reasons to Refinance Parent PLUS Loans
Here are three reasons why it’s a good idea for your kids to assume the student loan debt you’re carrying from their college education.
- Lower interest rates
Since Parent PLUS loans need to be refinanced in order to be transferred to the child, they’ll be moved to a private lender. A private lender will likely offer a lower interest rate than the current federal rate on Parent PLUS loans. A lower interest rate means lower monthly payments and a faster path to paying off the loan completely.
- Opportunity for kids to build credit
Many new graduates, even after landing decent jobs, forget about the importance of establishing credit. When it comes time to make a big purchase, like a home, they wish they had paid greater attention to their credit standing. Making consistent, timely monthly payments toward student loan debt is a great way to build credit and improve eligibility for future loans.
- Opportunity for you to save for retirement
After working for many years, it would be disheartening and overwhelming for dentists to approach retirement under a mountain of debt. Passing student loan debt along to your children allows you to prioritize your own financial security in retirement.
No Kids or Kids Too Young for This Parent PLUS Topic?
For all those new dentists out there without children or who haven’t yet confronted the task of college financing for their kids, it’s just good to know that there are solutions out there to combat the cost of college tuition. Save this blog post for the future.
DRB (Darien Rowayton Bank) is a national bank, marketplace lender and the fastest lender in industry history to reach $1 billion in student loan refinancings. FDIC insured and established in 2006, DRB Student Loan has helped thousands of professionals with graduate and undergraduate degrees across the country to refinance and consolidate federal and private student loans, saving these borrowers thousands of dollars each.
DRB’s student loan refinancing program has been endorsed by the ADA. For more information about the student loan refinancing program, visit https://student.drbank.com/ADA