Sometimes, scholarships, grants, and student loans for the student aren’t enough to pay for the full cost of college. In that case, you might be considering taking out a Parent PLUS loan to help your child finance college — or maybe you’ve already taken out one of these loans. In either case, it’s never too soon to think about the most effective way to repay this debt.
The U.S. Department of Education provides these Direct PLUS loans, and they can be taken out by a parent to fund their child’s education. (Grandparents can take out these loans, but only if they have legally adopted the student.) Before applying, the student and parent must fill out the Free Application for Federal Student Aid (FAFSA®), then the parent can apply for a Direct PLUS loan for Parents .
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Parent PLUS Loan Overview
Parent PLUS loans are made directly to the parent for their child’s education. Unlike the federal student loans taken out by students themselves, parent borrowers must pay an origination fee for each Parent PLUS loan. Further, these loans are not subsidized, which means interest accrues on the principal balance from day one of fund disbursement.
it’s not possible to transfer a Parent PLUS loan within the federal loan program. And while there are a few private lenders that will allow a child to take out a refinanced loan to pay off their parent’s PLUS loan, it’s not technically a transfer.
Pros of Parent PLUS Loans
From a student’s perspective, a Parent PLUS loan can be a great way to help get their education funded without taking on more debt. (As a family, you can agree that the student will make these payments, but, legally, this is the parent’s debt, not the student’s.)
From a school’s perspective, this helps students pay for their education costs, so it’s a win for them. From a fill-the-gap perspective, these loans allow you to apply for whatever amount is needed to pay the school-certified cost of attendance not already covered by other means.
These loans are pretty straightforward to get, because debt-to-income ratios are not a factor, and a parent’s ability to get one is not limited by income. Credit history is factored in, and an adverse credit history can affect approval.
Adverse credit history in this case can include foreclosures, bankruptcy discharges, repossessions, defaults, wage garnishments, current delinquencies, and more. If you believe your credit circumstances qualify as adverse, you may still be able to be approved for funds. This may require adding an endorser who doesn’t have these credit challenges.
Parent PLUS loans also may be eligible for loan forgiveness programs, income-driven repayment plans, and other repayment benefits associated with federal student loan programs, including deferment and forbearance options.
Cons of Parent PLUS Loans
Challenges with Parent PLUS loans include the fact that, 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.
Plus, this debt may prevent parents from maintaining their own financial goals such as emergency savings accounts, retirement savings, and so forth — and interest rates may be higher than on some private parent student loan options. There is only one Parent PLUS loan interest rate available — set annually — regardless of the creditworthiness of the applicant.
Alternatives to Parent PLUS Loans
Private Parent Loans. The rates and terms on private parent loans can vary significantly from lender to lender, so you might want to shop around and read the terms carefully. Interest rates may be lower than those offered on the Parent PLUS loan, especially for borrowers with a strong credit history and other solid financial stats, but there may be fees, caps on what you can borrow, and limits on repayment options.
Home Equity Line of Credit. Another option is a home equity line of credit (HELOC). If you have equity in your home, you can often get a relatively low interest rate on your HELOC, but your home would be on the line and you may have limited equity to tap into. There are no deferment or forbearance options either, and these loans have several requirements and restrictions .
Can a Parent Loan Be Transferred to the Student?
There is no federal loan program that will allow you to transfer your Parent PLUS loan to your child. And you technically can’t transfer the loan, even though a private lender. However, some private lenders (SoFi included) do allow the child to take out a refinanced student loan and use it to pay off their parent’s PLUS loan.
If your child hasn’t refinanced, then you could create an agreement through which they will give you the money to make the payments. But, if your child already has significant student loan debt, they may not be able to meet current obligations and have enough left over to pay you. Circumstances differ.
How to Transfer Parent PLUS Loan to Students
Transfering a Parent PLUS loan into the name of the student requires the loan to be refinanced with a private lender. Before moving forward with refinancing, know that refinancing federal loans eliminates them from borrower protection programs like Public Service Loan Forgiveness or deferment options.
If you and your child are interested in refinancing a Parent PLUS loan into the student’s name, the first step is to shop around and compare private lenders. Rates and eligibility to refinance will vary by lender, your child can prequalify with a few different lenders to see which one offers the best rates and terms for the loan. Generally, lenders do a soft-credit pull when determining prequalification, so your child’s credit score shouldn’t be impacted. Be sure to confirm with the lender that this is the case.
In the event that the child’s credit history and income, among other factors, aren’t strong enough to be approved for a refinanced loan, it may be possible for the parent to cosign the loan. Some lenders may also offer the option for cosigner release, but not all do. If pursuing this option, read the fine print carefully to be sure you understand the requirements for borrowing and cosigner release.
Parent PLUS Refinancing
Because Parent PLUS interest rates can be high relative to other federal student loans, refinancing these loans to hopefully obtain a lower interest rate might be appealing. As previously discussed, it’s possible for your child to take out a refinanced loan, and take over your Parent PLUS loan, thereby getting the debt out of your name.
As a parent, you may also be interested in refinancing a Parent PLUS loan. Refinancing results in the PLUS loan being transferred to another lender, ideally after qualifying for a lower interest rate. Securing a lower interest rate might allow you to pay less interest over the life of the loan — and if you also shorten your loan term, you can potentially get the loan paid off more quickly.
When you refinance Parent PLUS loans, you do lose borrower protections provided by the federal government, such as income-driven repayment plans, forbearance, and deferment.
If the concept of refinancing your Parent PLUS loan appeals to you, here are five potential considerations. If you’re nodding your head as you read them, then refinancing may be the right choice for you.
1. Your Parent PLUS loan has a higher interest rate than you’d like.
2. Your principal balance is large.
3. You’ve taken good care of your personal finances.
4. Your income is predictable.
So, can Parent PLUS loans be transferred to the student? The answer is that your child may be able to apply for a student loan refinance and use that refinanced loan to pay off your Parent PLUS loan.
Or, if you as a parent would like to refinance your Parent PLUS loan to potentially qualify for a lower interest rate or better loan terms, you can do so — though that would mean keeping the debt in your name. What you can’t do, unfortunately, is transfer your Parent PLUS loans to your child through any sort of federal program.
At SoFi, you can refinance federal Parent PLUS loans and qualified private student loans into one new loan with one convenient payment. There are no application fees. No origination fees. No prepayment fees.
What if I can’t pay my Parent PLUS loans?
If you are struggling to pay your Parent PLUS loan, there are a few options. It may be possible to transfer the loan into your child’s name by having your child refinance the loan with a private lender. Additionally, you could switch the repayment plan you are enrolled in. Federal plans including the standard repayment plan, graduated repayment plan, and extended repayment plan are available to PLUS loan borrowers. You can also consolidate the loan into the Direct Consolidation loan which opens up eligibility for income-driven repayment plans. In some cases, it may also be possible for you to apply for a deferment or forbearance to suspend payments temporarily (note that interest will continue to accrue).
Can you refinance a Parent PLUS loan?
Yes, it is possible to refinancing a Parent PLUS loan with a private lender. Doing so will eliminate the loan from any federal borrower protections but could allow you to secure a more competitive interest rate or have the refinanced loan taken out in your child’s name instead of your own.
Is there loan forgiveness for parents PLUS loans?
It is possible to pursue Public Service Loan Forgiveness (PSLF) with a Parent PLUS loan. To do so, the loan (or loans) will first need to be consolidated into a Direct Consolidation loan and then enrolled in an income-driven repayment 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 nonprofit). Note that eligibility for PSLF is depending on your job as the parent borrower, not your child’s job.
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SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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