Can You Transfer a Parent PLUS Loan to a Student?
If you’re wondering how to transfer a parent PLUS loan to a student, we have good news: The student can take on the loan by refinancing it in their own name. As long as the student can qualify for refinancing on their own, they can assume full responsibility for the loan.
Keep reading to learn more about how to refinance parent PLUS loans in your child’s name and whether it’s right for you. Specifically, let’s look at:
Transferring a parent PLUS loan to the student through refinancing: the basics
Parent PLUS loans are made directly to parents for their child’s education. The way things are set up now through the Department of Education, parents cannot transfer these federal loans to a child, and they are solely responsible for paying back the loan.
But there is a way to get around this if you’re thinking about how to transfer the parent PLUS loan to the student: refinancing parent PLUS loans in your child’s name. To refinance parent PLUS loans, your child will need to apply and be approved for the loan through a private student loan lender. They would have to supply information about their credit score, school and degree.
Each lender will have varying eligibility requirements — typically, though, lenders want the child to prove they have the financial means to pay back the loan themselves.
Dan Macklin, a co-founder of student loan refinancing company SoFi, noted the following eligibility requirements: “SoFi will take into account several factors, such as [the applicant’s] eligibility, education, career experience, monthly income relative to expenses and financial history in determining whether to refinance a parent PLUS into a loan in the graduate’s name,” he told LendingTree.
To refinance and transfer the parent PLUS loans to your child, follow these three steps:
- Ask your child to apply for a student loan in their name with a lender. You can help your child complete the application, but the lender may approve or reject it based on their information alone.
- Include the parent PLUS loan on the refinancing application and note that it is under your name.
- If approved, the lender will issue your child a new loan, which can be used to pay off your parent PLUS loan(s).
The new loan may have different terms and conditions, and potentially a lower interest rate as well. Unlike the parent PLUS loan, the new loan will be entirely in your child’s name.
“Transferring a loan from parent to child absolves parents from the debt obligation and enables the child to select the appropriate loan terms,” Macklin said. “The child may be able to reduce monthly payments on the outstanding debt, as some parent PLUS loans have rates as high as 8.50%. It also enables the parent to refocus their own goals, such as saving for retirement.”
Benefits of refinancing parent PLUS loans
There are many benefits to refinancing parent PLUS loans to the student, such as:
- The parent would be released from the original loan.
- The child may get a lower interest rate on the new loan.
- The child could build credit by making on-time payments.
If you refinance parent PLUS loans to the student and pass on the responsibility of the loan, your child could stand to save money on interest. In addition, they could also take advantage of the unique benefits offered by some lenders, including unemployment protection, career services and networking events.
Drawbacks of refinancing parent PLUS loans
Before you decide to transfer your parent PLUS loan(s) to the student, there are some downsides you should also be aware of, including:
- By refinancing with a private lender, you’ll lose federal student loan benefits, such as access to income-driven repayment options and Public Service Loan Forgiveness (PSLF).
- The legal liability for the loans will be transferred to your child, as the parent PLUS loans will be paid off, and your child will now have to repay the new loan.
- The process is not reversible.
If you want to refinance parent PLUS loans, you and your child should be on the same page. Both you and your child should understand the financial and legal implications of refinancing and also have a firm grasp of what you may be giving up.
Other options for immediate relief
Even if you know how to transfer parent PLUS loans to the student, you might decide this move isn’t right for you and your family, especially if you’re relying on federal benefits. Fortunately, you have a couple of other options for managing your parent PLUS loan(s).
For one, you could explore an income-contingent repayment (ICR) plan, which adjusts your monthly payments in accordance with your discretionary income. Note that you’ll have to consolidate your parent PLUS loan(s) before they’re eligible for ICR.
Another option is loan forgiveness through a program like Public Service Loan Forgiveness. If your job makes you eligible for PSLF or a similar program, you could get some or all of your balance canceled. You would also have to consolidate your parent PLUS loan(s) with this option, as PSLF requires that you repay under an income-driven repayment plan.
In addition, some employers even offer student loan repayment assistance to help indebted employees.
While none of these options will get rid of your debt overnight, they could provide relief. And if you do decide to refinance your parent PLUS loan(s) in your child’s name, you could say goodbye to your debt for good.