How to transfer Parent PLUS Loans to your child with refinancing

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The federal government doesn't allow parents to pass Parent PLUS Loans to their children. Loan consolidation won't work. The Direct Consolidation Loan Program lets you combine your student loan debt into a new loan, but it doesn't let you change the responsibility for paying it back. However, there is a workaround: using a private student loan refinancing company.

A handful of private lenders allow parent loans to be transferred to a child. The lender pays the Parent PLUS Loan balance, and the child gets a private student loan with new terms and conditions.

Note: A Parent PLUS Loan is a Direct PLUS Loan made to a parent borrower to cover their child's cost of attendance not covered by other financial aid.

Can Parent PLUS loans be transferred to a student?

The US Department of Education won't let you transfer Federal Parent PLUS loans to the student. Once you borrow a parent loan to pay for your child's education, you're the only person responsible for repaying the debt — no matter what you and your child agreed to about repayment.

You have two options to transfer the debt to your child:

  • Refinance the Parent PLUS Loan with a private lender in your child's name if they meet the credit qualifications.
  • Co-sign a refinancing loan if your child lacks the credit score or income to qualify today and later work to meet the lender's cosigner release requirements.

Refinancing federal loans comes at a cost. You'll lose protections like repayment plans based on your income, loan forgiveness programs, and deferments and forbearances due to national emergencies like the COVID-19 pandemic. However, the cost of losing those benefits may be outweighed by getting a much lower interest rate from a student loan refinance company.

Do Parent PLUS loans get passed down? The responsibility to repay Parent PLUS Loans doesn't get passed down at death. Once the loan servicer learns that the parent died, the remaining balance will be forgiven. You can read more about what happens to student loans when you die here.

How to transfer Parent PLUS loans to the student

To transfer Parent PLUS Loans to your child, follow these steps:

  1. Find lenders that allow children to refinance Parent PLUS Loans into their name. Not all lenders offer this option, but many do.
  2. Compare the different terms and conditions. Rates, eligibility requirements, and loan terms will vary by lender. Compare the variable rates and fixed interest rates being offered, the repayment terms, origination fees, credit check requirements, etc.
  3. Pre-qualify for the refinance loan. The lender will review the child's credit history, income, and debt-to-income ratio as part of the application process. A good credit score for student loan refinancing is typically 680 or better.
  4. Request a student loan payoff statement. You will need to contact your loan servicer to request a payoff verification statement showing the current loan amount for the parent loans your child included in their refinancing application.
  5. Accept the new loan. Once accepted, the lender will contact the servicer to pay off the federal student loans, thereby removing your liability for the debt after disbursement and putting it entirely in your child's name.

Learn more: Top Lenders to Refinance Parent PLUS Loans

Consequences of refinancing Parent PLUS loans to a child

Refinancing means the Parent PLUS Loan will no longer be eligible for Income-Contingent Repayment. The ICR plan makes student loan repayment more manageable by capping the payment amount at a portion of your discretionary income. The monthly payment for the new private student loan may be much higher.

Your child will also lose access to loan forgiveness options for parent PLUS loans. The federal government forgives the remaining loan balance after 25 years of payments under the ICR plan. It also wipes out the debt for parents who qualify for the Public Service Loan Forgiveness program.

Signs your child is ready to take on the Parent PLUS Loan

Not every child will qualify to refinance student loans. Each lender sets its own eligibility requirements for approving loan applications. Some signs your child is ready to transfer the loans into their name include:

  • Good credit. Many lenders will require a credit score of 680 or higher. Before they apply, have your child pull their credit reports to make sure it's free of late payments and collections accounts.
  • Stable income. Lenders will look at your child's employment history and income to make sure they can make the regular payments on the loan while maintaining their other expenses and debt payments.
  • History of being responsible. You know whether your child has shown they can handle paying their bills without your help. If they've shown they can manage their personal finances and their budget has room for a new bill, maybe it's time to allow them to relieve you of the education loans you borrowed for them.

Options if your child can't qualify for refinancing

Transferring your Parent PLUS Loans to your child is great, but not everyone will qualify. Here's what you can do instead:

  • Co-sign the loan. If the lender denies your child's application, consider reapplying with you as a cosigner. Before you do that, check the conditions for a cosigner release. Expect to make 24-36 months of on-time payments before you're released.
  • Hire a coach. If your child's credit prevents them from getting the loan, get them matched up with a personal finance coach to help them improve their credit score and streamline their budget. While this option won't free you from the debt immediately, it can put your child on the path to taking that burden off your shoulders.
  • Explore your repayment options. Your child may not qualify for refinancing despite best efforts, and you may be stuck with the debt. If you can't keep up with the student loan payments, you have options, including making payments based on your income or monthly Social Security benefits if you retire.

Want help with a Parent PLUS Loan? Let's talk.

Dealing with Parent PLUS Loans as you near retirement can be scary. Parent PLUS Loan Forgiveness at retirement isn't a thing. The interest rates are as high as other personal loans. And, as you near retirement, the balances get larger and larger as your income gets smaller and smaller.

I get it. I've helped borrowers across the nation explore there Parent PLUS Loan repayment options to develop a payment plan to deal with their loans. Let me do the same for you. Schedule a free 10-minute call with me. I'll get a better understanding of your situation and what you want to accomplish, and when.

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