Can a Parent PLUS Loan Be Transferred to a Student?
If you took out a federal Parent PLUS loan to help your child through college, you may be wondering if it’s possible to transfer the loan into your child’s name now that they’ve graduated and have an income. While there are no federal loan programs that allow for this, there are other options that let your child take over the loan.
Read on to learn how to transfer a Parent PLUS loan to a student.
Table of Contents
Key Points
• Transferring a Parent PLUS loan to a student involves refinancing through a private lender.
• The student must apply for a new loan to pay off the Parent PLUS loan.
• Once refinanced, the student becomes responsible for the new loan’s repayments.
• Refinancing can potentially lower the interest rate and monthly payments.
• The process is irreversible, making the student solely responsible for the debt.
How to Transfer a Parent PLUS Loan to a Student
There are no specific programs in place to transfer a Parent PLUS loan to a student, but there is a way to do it. To make the transfer of the Parent PLUS loan to a student, the student can apply for student loan refinancing through a private lender. The student then uses the refinance loan to pay off the Parent PLUS loan, and they become responsible for making the monthly payments and paying off the new loan.
Here’s how to refinance Parent PLUS loans to a student.
Gather Your Loan Information
When filling out the refinancing application, the student will need to include information about the Parent Plus loan. Pull together documentation about the loan ahead of time, including statements with the loan payoff information, and the name of the loan servicer.
Compare Lenders
Look for lenders that refinance Parent PLUS loans (most but not all lenders do). Then shop around to find the best interest rate and terms. Many lenders allow applicants to prequalify, which doesn’t impact their credit score.
Fill Out an Application
Once the student has found the lender they’d like to work with, they will need to submit a formal application. They can list the Parent PLUS loan on the application and note that it is in their parent’s name, and include any supporting documentation the lender requires.
Eligibility Requirements for Refinancing a Parent PLUS Loan
To refinance a Parent PLUS loan to a student, the student should first make sure that they qualify for refinancing. Lenders look at a variety of factors when deciding whether to approve a refinance loan, including credit history and credit score, employment, and income. Specific eligibility requirements may vary by lender, but they typically include:
• A credit score of at least 670 to qualify for refinancing and to get better interest rates
• A stable job
• A steady income
• A history of repaying other debts
If approved for refinancing, the student can pay off the Parent PLUS loan with the refinance loan and begin making payments on the new loan.
Advantages of Refinancing a Parent PLUS Loan
The main advantage of refinancing a parent student loan like a Parent PLUS loan is to get the loan out of the parent’s name and into the student’s. However, there are other potential advantages to refinancing student loans, including:
• Lowering the interest rate
• Reducing the monthly payments
• Paying off the loan faster
• Helping the student to build a credit history
Disadvantages of Refinancing a Parent PLUS Loan
While it may be beneficial to refinance a Parent PLUS loan into a private loan, there are some disadvantages to Parent PLUS vs. private loans that should be considered. The drawbacks include:
• Losing federal student loan benefits, including income-driven repayment, deferment options, and Public Service Loan Forgiveness
• Possibly ending up with a higher interest rate, especially if the student has poor credit
• The student is solely responsible for the monthly payment, which might become a hardship if their income is low
If you do choose to refinance your Parent PLUS loan, you should note that this process is not reversible. Once your child signs on the dotted line and pays off the Parent PLUS loan, the debt is theirs.
Parent PLUS Loan Overview
The Department of Education provides Parent PLUS loans that can be taken out by a parent to fund their child’s education. Before applying, the student and parent must fill out the Free Application for Federal Student Aid (FAFSA®).
Then the parent can apply directly for a Parent PLUS loan, also known as a Direct PLUS Loan.
The purpose of a Parent PLUS loan is to fund the education of the borrower’s child. The loan is made in the parent’s name, and the parent is ultimately responsible for repaying the loan. Parent PLUS loans come with higher interest rates than federal student loans made to students, plus a loan fee that is the percentage of the loan amount. These loans are not subsidized, which means interest accrues on the principal balance from day one of fund disbursement.
Parents are eligible to take out a maximum of the cost of attendance for their child’s school, minus any financial aid the student is receiving. Payments are due immediately from the time the loan is disbursed, unless you request a deferment to delay payment. You can also opt to make interest-only payments on the loan until your child has graduated.
Pros and Cons of Parent PLUS Loans
Parent PLUS loans allow you to help your child attend college without them accruing debt.
Pros of Parent PLUS loans include:
You can pay for college in its entirety. Parent PLUS loans can cover the full cost of attendance, including tuition, books, room and board, and other fees. Any money left over after expenses is paid to you, unless you request the funds be given directly to your child.
Multiple repayment plans available. As a parent borrower, you can choose from three types of repayment plans: standard, graduated, or extended. With all three, interest will start accruing immediately.
Interest rates are fixed. Interest rates on Parent PLUS loans are fixed for the life of the loan. This allows you to plan your budget and monthly expenses around this additional debt.
They are relatively easy to get. To qualify for a Parent PLUS loan, you must be the biological or adoptive parent of the child, meet the general requirements for receiving financial aid, and not have an adverse credit history. If you do have an adverse credit history, you may still be able to qualify by applying with an endorser or proving that you have extenuating circumstances, as well as undergoing credit counseling. Your debt-to-income ratio and credit score are not factored into approval.
Cons of Parent PLUS loans include:
Large borrowing amounts. Because there isn’t a limit on the amount that can be borrowed as long as it doesn’t exceed college attendance costs, it can be easy to take on significant amounts of debt.
Interest accrues immediately. You may be able to defer payments until after your child has graduated, but interest starts accruing from the moment you take out the loan. By comparison, federal subsidized loans, which are available to students with financial need, do not accrue interest until the first loan payment is due.
Loan fees. There is a loan fee on Parent PLUS loans. The fee is a percentage of the loan amount and it is currently (since October 2020) 4.228%.
Can a Child Make the Parent PLUS Loan Payments?
Yes, your child can make the monthly payments on your Parent PLUS loan. If you want to avoid having your child apply for student loan refinance, you can simply have them make the Parent PLUS loan payment each month instead.
However, it’s important to be aware that if you do this, the loan will still be in your name. If your child misses a payment, it will affect your credit score, not theirs. Your child also will not be building their own credit history since the debt is not in their name.
Parent PLUS Loan Refinancing
As a parent, you may also be interested in refinancing your Parent PLUS loan yourself. Refinancing results in the Parent PLUS loan being transferred to another lender — in this case, a private lender. With refinancing, you may be able to qualify for a lower interest rate. Securing a lower interest rate allows you to pay less interest over the life of the loan.
When you refinance federal Parent PLUS loans, you do lose borrower protections provided by the federal government. These include income-driven repayment plans, forbearance, deferment, and federal loan forgiveness programs. If you are currently taking advantage of one of these opportunities, it may not be in your best interest to refinance.
Parent Plus Loan Consolidation
Another option for parents with Parent PLUS loans is consolidation. By consolidating these loans into a Direct Consolidation Loan you become eligible for the income-contingent repayment (ICR) plan, which is an income-driven repayment (IDR) plan. (Parent PLUS loans are not eligible for IDR plans otherwise.)
On an ICR plan, your monthly payments are either what you would pay on a repayment plan with a fixed monthly payment over 12 years, adjusted based on your income; or 20% of your discretionary income divided by 12 — whichever is less.
One thing to consider if you consolidate a Parent PLUS loan is that you may pay more interest. In the consolidation process, the outstanding interest on the loans you consolidate becomes part of the principal balance on the consolidation loan. That means interest may accrue on a higher principal balance than you would have had without consolidation.
Alternatives to Transferring a Parent PLUS Loan
Instead of learning how to transfer Parent PLUS loans to a student, you could opt to keep the loan in your name and have your child make the monthly loan payments instead. But as noted previously, if you go this route and your child neglects to make any payments, it affects your credit not theirs. Also, when the loan remains in your name, the child is not building a credit history of their own.
You could also choose to consolidate Parent PLUS loans, as outlined above. Just weigh the pros and cons of doing so.
And finally, you could refinance the loan in your name to get a lower interest rate or more favorable terms, if you qualify.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
What if I can’t pay my Parent PLUS loans?
If you are struggling to pay your Parent PLUS loan, get in touch with your lender right away. One option they may offer is a deferment or forbearance to temporarily suspend your payments. Keep in mind that with forbearance, interest will continue to accrue on your loan even if payments are postponed.
You could also consider switching the repayment plan you are enrolled in to an extended repayment plan, or refinancing your loan in order to get a lower interest rate.
Can you refinance a Parent PLUS loan?
Yes, you can refinance a Parent PLUS loan through a private lender. Doing so will make the loan ineligible for any federal borrower protections, but it might allow you to secure a more competitive interest rate or more favorable terms. You could also opt to have the refinanced loan taken out in your child’s name instead of your own.
Is there loan forgiveness for Parent PLUS loans?
It is possible to pursue Public Service Loan Forgiveness (PSLF) with a Parent PLUS loan. To do so, the loan will first need to be consolidated into a Direct Consolidation loan and then enrolled in the income-contingent repayment (ICR) plan.
Then, you’ll have to meet the requirements for PSLF, including 120 qualifying payments while working for an eligible employer (such as a qualifying not-for-profit or government organization). Note that eligibility for PSLF depends on your job as the parent borrower, not your child’s job.
What happens if a Parent PLUS loan is not repaid?
If you can’t make the payments on a Parent PLUS loan, contact your loan servicer immediately to prevent the loan from going into default. The loan servicer can go over the options you have to keep your loan in good standing. For instance, you could change your repayment plan to lower your monthly payment. Or you could opt for a deferment or forbearance to temporarily stop the payments on your loan.
Can a Parent PLUS loan be consolidated with federal loans in the student’s name?
No, Parent PLUS loans cannot be consolidated with federal student loans in the student’s name. You can only consolidate Parent PLUS loans in your name.
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