Parent PLUS loans enable parents to borrow money for their college-bound children.
Because they have less stringent credit standards and more accommodating repayment choices than the majority of private lenders, these federal loans can be a helpful source of cash for parents.
However, some parents wish to transfer such loans to their adult children after the student graduates, or the adult children want to assume the debt from their parents.
But is it possible to transfer a parent PLUS loan to the student? Although not as simple as you might imagine, it is feasible. Consider the following.
A parent PLUS loan cannot be transferred to the student who benefited from it under any federal program. You are accountable for any federal PLUS loans you take out until they are fully repaid.
If you are set on transferring the debt, there are alternative possibilities. Through a private lender, a parent PLUS loan can be refinanced in the student’s name.
The student can refinance by taking out a new loan to settle the parent’s current PLUS loan.
The student would be responsible for paying back the newly refinanced loan to the private lender.
Pros and Cons of Refinancing a Parent PLUS Loan in the Student’s Name
While there are some advantages to transferring student loans from parents to students, there are also some major drawbacks. Consider this:
- Parents are no longer paying attention.
- Once the loan is removed from your parent’s name, you no longer have to worry about payments.
- This can free up money in your budget and improve your debt-to-income (DTI) ratio.
- students can create their own credit profiles.
- College fresh out of college may not have a great credit history, but you can build one by making regular and timely student loan payments.
- The more on-time students pay their bills, the more conscious they will be about future lenders when purchasing a car or applying for a credit card.
- Interest rates that are lower than what you are currently paying may apply.
- Parent PLUS loans tend to have higher interest rates compared to other federal loans.
For example, a PLUS loan executed between July 2022 and July 2023 has a fixed interest rate of 7.54%.
If the student is an eligible borrower and is refinancing their debt, they may get a lower interest rate from a private lender.
Refinancing a Parent PLUS loan makes it a private debt that doesn’t have the same benefits as a federal loan.
For example, the Eltern PLUS loan was automatically suspended during the Covid-19 pandemic.
- You’ll also lose your federal student loan forgiveness option. Take the plunge and make sure you don’t need these benefits, as refinancing is irreversible.
- Low flexibility in terms of repayment.
- Parent PLUS loans are subject to certain federal repayment plans that allow you to repay the loan for up to 25 years.
- When refinancing, the terms are based on criteria set by the lender. Most private lenders offer terms of 5 to 20 years. Parents may still need to take out a loan.
- A co-signer may be required to complete the refinancing process if the student’s name does not have much credit history.
- Parents may be required to jointly sign the debt if they are not eligible.
Talk With Your Child About Your Options
If you have a Parental Loan PLUS for your child and are looking for alternative ways to pay off your debt, discuss with your child how they will be happy with the installment plan.
Keep your current loan If parents have trouble paying or want to share responsibilities with students, consider a more informal arrangement.
Students can pay their parents directly or add a bank account to their parents’ repayment plan.
This allows you to keep federal protections on loans while including students in payments.
Refinance a new loan on behalf of a student. If your student has good credit, you can take on the debt by simply refinancing it to a loan in your own name.
Parents are not responsible, but it is now a privately funded loan, not a federal loan. Refinancing to a co-signed loan.
Students may not be eligible for refinancing loans if they do not have a good credit history. In this case, parents can add their names as co-signers to help the student qualify.
Of course, you’re also giving up federal protections in that case, but if you can get your hands on a low enough interest rate, the risk may be worth it.
How to Transfer Parent PLUS Loans to the Student
Here’s how to transfer your parent PLUS loan into a private refinanced loan if you’re getting ready to do so.
1. Shop and Compare Lenders
Read the fine print before you submit an application; not all lenders will refinance a parent PLUS loan into the student’s name. Among the lenders who do provide it are:
- Laurel Road
- PenFed Credit Union
Also, take into account whether the student can pass the lender’s qualifications.
For instance, the majority of lenders will demand that the student has completed their education and can adhere to minimum income and credit requirements.
Compare the lenders you’ve found who can meet your needs based on their offered interest rates, payback terms, and costs.
2. Prequalify, If Possible
Check to determine whether the student can prequalify for a refinanced loan if the lender offers it.
Enter a few details about the borrower’s financial situation and eligibility to check if they qualify for a loan with a certain lender.
Without harming your credit score, you can view anticipated interest rates and payback schedules.
If there isn’t a prequalification option available, check your credit profile carefully before submitting a full application.
3. Consider Co-Signing, If Necessary
If the student can’t get their own loan and wants to take over payments, they will need a co-signer.
If you co-sign a loan, you are responsible for any missed payments made by your child. Your credit ratings will both suffer if they stop making payments.
Check the lender’s policies to see whether there is a co-signer release if you intend to co-sign the loan.
With this choice, the co-signer may be dropped from the loan once specific requirements are satisfied.
4. Submit an Application and Finalize the Paperwork
Once you’ve identified the ideal lender for your needs, submit the application.
Prepare all of your paperwork, including current tax returns, pay stubs, and proof of identity, such as a driver’s license.
The second applicant will also need to give this information if the loan requires a co-signer.
Applications are handled and processed differently by each lender; you might hear back straight away or it might take a few days.
Your lender can require more information from you before approving you, depending on your application.
Drawbacks to refinancing in your child’s name
Your child will no longer be able to use the Parentals Plus loan repayment option by refinancing to a private lender.
Refinanced loans are no longer subject to income-dependent repayments, and capping a portion of your income and extending the repayment period make payments more manageable.
Refinancing also eliminates the loan forgiveness option for Parents PLUS loans.
However, income-related rebate amounts are not necessarily more affordable because they are based on the income and debt of the parent rather than the income and debt of the child.
Parents must also qualify for government loan forgiveness to take advantage of this program.
This may make these options less important for children repaying Parent PLUS loans.
Editor’s Desk: How Does Student Loan Forgiveness Affect Your Credit Score?
What if your child can’t qualify for Refinancing?
If your child’s financial history isn’t good enough to transfer the parent’s loan directly, consider co-signing a refinancing loan.
As a co-signer, your name will still be on loan. So even if your child plans to pay for everything, your credit will suffer if they don’t.
However, co-signatures can help children qualify when they otherwise cannot and, depending on their credit rating, may receive lower interest rates than they would have received alone.
Release the co-signer after the payment has been made. Seek out lenders that offer this option to ultimately be debt-free.
You might want to check this: How to Get a Health Professions Student Loan
Parents of dependent undergraduate students may use Direct PLUS Loans, which are federal loans, to aid with the cost of attending college or a career school. PLUS loans can assist in covering college costs that aren’t covered by other forms of financial aid.
It’s simple to apply for federal parent PLUS loans: On financial assistance award letters, colleges frequently list them alongside grants and undergraduate loans. They don’t have the customary income and credit history underwriting standards. Additionally, there is no cap on the total amount a parent may borrow.
Refinancing parent PLUS loans makes sense in some circumstances, however, it’s not always the best choice. Think about refinancing if
Your child wants to use a student loan in their name to establish credit.
A lower interest rate than the one you currently pay is possible.
You don’t mind forgoing federal protections and advantages, such as adaptable alternatives for repayment and forgiveness.