With rising college costs, some parents are turning to Parent PLUS loans to help their students pay for school. These loans are special federal student loans parents can borrow to support their children’s education. While they can be immensely helpful for covering college costs, you don’t want to be paying off Parent PLUS loans into your retirement.
Once school is over and your child has a job, you might wonder: Can Parent PLUS loans be transferred to someone else? Yes, it’s possible, but the process is complicated. If you’re interested in having your child assume responsibility for that debt, here’s how to transfer a Parent PLUS loan to a student or new grad.
How to Transfer a Parent PLUS Loan to Someone Else
It’s important to note that the Department of Education (DOE) doesn’t have a process for transferring Parent PLUS Loans to students. Instead, if you’ve taken a Parent PLUS loan to help your child with college, you’re responsible for paying it back, no matter what is happening with your student after they graduate.
Even though you can’t do so through the DOE, it’s still possible to transfer a Parent PLUS loan to a student — but it requires a workaround. Instead of a direct transfer, you may be able to refinance the Parent PLUS loans and transfer that debt to your child.
When and How to Refinance Parent PLUS Loans to Your Child
When determining how to transfer a Parent PLUS loan to your child, you need to ensure they’re ready to take on that debt. They’ll be responsible for repayment and must be able to meet their new lender’s borrowing qualifications.
Signs your child is ready to take on the Parent PLUS loan:
Before refinancing Parent PLUS loans to your child, ensure they’re ready to take on the responsibility of repaying that debt. Some signs your child could handle the new payments include:
- They have a stable income. They’ll be able to make regular payments on the loan that will now be in their name.
- They have a history of meeting their obligations. They’re more likely to be ready to add the Parent PLUS loan payments to their budget if they have made other payments in the past, such as rent and utilities, and can manage their bills effectively.
- They’ve built good credit. In many cases, you can’t refinance Parent PLUS loans to your child unless they meet the new lender’s credit requirements. Ensure your child has built their credit history.
You can begin the refinancing process once you’ve discussed these things with your child, and they are willing to go through the process.
Steps for how to transfer a Parent PLUS loan to your child:
Step 1
Your child must apply for a student loan refinance in their own name. The application is based on your child’s information alone. This is why it’s important to ensure they have a steady income and meet the lender’s criteria. Otherwise, their application may be rejected, and you’ll still be responsible for the Parent PLUS loan.
Step 2
Include information about the Parent PLUS loan on the refinancing application. In most cases, your child will need to note on the application that the Parent PLUS loan is in your name. If there are other student loans your child wants to refinance, they should be listed as well so their loans are consolidated together. Your child must provide all the information the new lender requests on the application, plus any supporting documentation, such as loan documents, proof of income, proof of address, and more.
Step 3
If the loan is approved, the new lender will disburse funds to pay off the various loans, including your Parent PLUS loan. Verify that your Parent PLUS loans have been paid off by logging into your loan account or contacting your loan servicer.
Pros and Cons of Refinancing Parent PLUS Loans
Pros
- You are no longer responsible for the loan. As long as the Parent PLUS loan is in your name, you’re solely responsible for payments. Once the refinance is complete, the loan is transferred to your child, who will be responsible for payments.
- Your child may get a lower interest rate on the loan. Well-qualified graduates, especially those with good credit scores and low debt-to-income ratios, may also receive a lower student loan interest rate.
- The new loan can help your child build credit. If your child makes on-time payments on their newly-refinanced loan, they could potentially build credit and qualify for better rates on financial products later.
Cons
- This is an irreversible process. Once you take this step, it can’t be undone. As soon as the Parent PLUS loan is refinanced, your child is responsible, and the only way to put the loan back under your responsibility is to refinance again.
- You could lose federal loan benefits. Parent PLUS loans might be eligible for certain federal benefits. If you refinance your loan with a private lender, it’s no longer eligible for these benefits.
- The loan could damage your child’s credit. If you transfer your Parent PLUS loans to your child before they’re ready for the responsibility, they might miss payments. Missed payments could damage their credit, and they could also end up in default.
The Bottom Line
So, can Parent PLUS loans be transferred to a student? It is possible… if you refinance your Parent PLUS loan to your child. They’ll then take over responsibility for their educational debt, and it could help them build credit. But before moving forward with the process, ensure your child is ready to manage the payments to help them avoid financial troubles.
