Parent PLUS Loans can be an excellent way for parents to help their kids finance their education. But now that your child has graduated and you’re nearing retirement, you may want them to take over the loan payments.
If you’re wondering, “Can a Parent PLUS loan be transferred to the student?” The answer is yes. But instead of going through the U.S. Department of Education to transfer a Parent PLUS Loan to a student, you’ll need to refinance the loan to the child with a private lender.
Here’s what parent borrowers need to know about how to transfer a Parent PLUS Loan to a student.
How to transfer a Parent PLUS Loan to a student
Although you’re currently solely responsible for paying back your Parent PLUS Loan, it’s possible to transfer your remaining balance to your child through refinancing.
Not all private lenders allow this transfer, though. So it’s important to know your options before you start the process. We found six major student loan refinancing lenders that don't charge origination fees or prepayment penalties and allow you to transfer a Parent PLUS Loan to your student.
Each one requires the child to apply for the new loan as if they were refinancing their own loans. So if you were thinking of trying to pull a fast one and transfer the loans without their consent, you’re out of luck.
Here are the lenders and some of their requirements:
- Education Loan Finance (ELFI): Your child must meet ELFI’s credit, income, and debt-to-income ratio requirements to get approved. Borrowers can get a cash bonus of up to $1,275 by using our link. Read our ELFI review.
- Laurel Road: Your child must be professionally employed and meet the lender’s credit requirements. Apply with this link to get up to $1,050 cashback. Read our Laurel Road review.
- SoFi: Your child must meet SoFi’s general eligibility requirements. Get up to a $1000 SoFi bonus when you use our SoFi link. Read our SoFi review.
- PenFed Credit Union: Along with credit and income criteria, PenFed requires an affidavit to confirm that both you and your child understand the responsibility of the loan. Read our PenFed review.
- Advantage Education Loan: Your child must meet Advantage's general eligibility requirements. Read our Advantage Education Loan review.
Depending on the lender, there may be a spot in the application where your child can note that they’re transferring your loans into their name. If not, call the lender to let them know.
If your child doesn’t meet the credit and income requirements for private student loans on their own, they may be able to get approved with a creditworthy cosigner. Keep in mind, though, that the cosigner will still be legally responsible for paying off the student loan debt if the primary borrower stops making payments.
Should you refinance your Parent PLUS Loan in your child’s name?
While transferring a federal Parent PLUS Loan to your student is possible, the process is irreversible. So it’s important to consider both the benefits and the drawbacks of doing it before you start the conversation.
Pros
- Potentially lower interest rates. If you have an agreement set up for your child to make payments on your Parent PLUS Loans, refinancing could net them a lower interest rate than what they’re paying. Also, keep in mind that while all Direct Loans come with a fixed interest rate, private lenders usually offer both fixed and variable interest rates. Variable rates are riskier. But if your child plans to pay off their loans within three to five years, they could be worth considering due to their rock-bottom starting APRs.
- Transferred responsibility: Paying off student loans in your 40s, 50s, or beyond is never ideal. This is especially true if you’re nearing (or have already reached) retirement. By transferring the loans, you can focus on maintaining your own financial security.
- Credit-building opportunity: Making regular loan payments can help your child build their credit history. But this is only if the loan is in their name, not yours.
Cons
- Eligibility requirements: Not just anyone can qualify to refinance student loans. Lenders typically have a high credit score and income requirements, which can be tough for a recent graduate to meet.
- Cosigner responsibility: If you choose to co-sign your child’s new loan, it will show up on your credit report just as the current loan does. Also, you’d still be on the hook for making payments if your child defaults.
- No access to federal benefits: Federal loans like Parent PLUS loans come with benefits, including access to federal forbearance and deferment, loan forgiveness programs like Public Service Loan Forgiveness (PSLF), and the income-contingent repayment plan (ICR) if you consolidate into a federal Direct Consolidation Loan. By refinancing federal student loans into private loans your child will lose those benefits.
Before making a decision, you can test out different scenarios and see estimated monthly payment amounts using our Parent PLUS Loan calculator.
Next steps: refinance Parent PLUS loan to a child
If you want to refinance a Parent PLUS loan to your child, talk to your child about your plan to ensure. You'll want to make sure they can take over the debt without putting themselves into financial jeopardy.
Next, gather the important information related to your Parent PLUS loans. This would include payoff balances, account numbers, and any other details the refinancing lender might want.
When it comes to picking the right lender, make sure to compare rates and terms from our six picks to get the best deal for your son or daughter. Many refinancing lenders allow you to get prequalified with just a soft credit check. This would allow your child to see what kinds of offers they qualify for before officially applying.
Once your child is approved, help them establish a good repayment plan. You'll want to make sure they stay on top of their payments. And, if possible, they should even try to pay down the loan faster than their repayment term.
This whole process can take a while to complete. So be sure to continue making payments on the original loans in the interim. Once the process is complete, you can return your focus to your own financial needs and goals.
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