#1 Student Loan Lawyer
Updated on June 16, 2022
Parent PLUS Loans can be a great way for parents to help finance their child’s undergraduate education, but you might want to offload the loan to the person whose education it financed. You can transfer Parent PLUS Loans to the student, but not another person, by refinancing with a private lender.
The U.S. Department of Education doesn’t allow federal Parent PLUS Loans to be transferred to the student using a Direct Consolidation Loan. But private lenders will let your child take over the responsibility for paying the parent loans if they meet the credit qualifications.
Ahead, learn how to get Parent PLUS Loans in the student’s name.
How to refinance Parent PLUS Loans in the student’s name
A student can take over a Parent PLUS Loan if they have a credit score of 680 or more and make enough money to cover their living expenses and the monthly payments on the new loan. If your child recently graduated, they likely don’t have much credit history. But refinancing parent loans when your child can do so will save the most money in interest paid over the life of the loan.
To transfer the Parent PLUS Loans to your child, follow these steps:
Step 1 – Find a lender willing to transfer a parent loan. Not all lenders will refinance Parent PLUS Loans in a child’s name, but many do. Plus, eligibility requirements vary by lender. Use an online marketplace like credible.com to shop for the best rates and loan terms.
Step 2 – Ask your child to pull their credit report. The lender will perform a credit check and review their debt to income ratio as part of the application process. They can get a free copy of their report from each of the three major credit bureaus once per year at annualcreditreport.com. Have them dispute any errors on their report.
Step 3 – Have your child apply to refinance the parent loan in their name. Once your child finds a lender, they have a few more decisions to make: do they want a variable or fixed interest rate, and how long do they want the repayment term to last? Keep in mind that variable rates may be lower at first, but they may change monthly or quarterly. And if the goal is to save the most money, choosing the shortest repayment period makes sense, but that could lead to higher monthly payments.
Step 4 – Sign the final documents. If approved, your child will need to sign the promissory note to transfer the Parent PLUS Loan to their name. Have them review the loan amount, payment terms, and any origination fees.
Step 5 – Wait for the loan payoff. A few days after the paperwork is signed, the new lender will pay off the existing lender or loan servicer. From then on, the Parent PLUS Loan will be in your child’s name and will be their responsibility. Until that happens, keep making payments on your loan or request a deferment or forbearance to temporarily postpone payments. If you overpay, you’ll get a refund.
Learn More: How to Refinance Student Loans
Drawbacks to refinancing Parent PLUS loans in your child’s name
Although student loan refinancing rates are low, there are drawbacks to transferring Parent PLUS Loans to your child. Private student loans don’t have the same benefits as federal student loans.
Once the loan is refinanced, you’ll lose access to Parent PLUS Loan repayment options, like the income-contingent repayment plan, that cap the monthly bill at 20% of your discretionary income.
Refinancing also forces you to give up access to other federal benefits like the Public Service Loan Forgiveness Program, discharge due to disability and death, and forbearances that pause payments when you’re experiencing financial hardship. Read more about loan forgiveness options for Parent PLUS Loans.
Learn More: How do Parent PLUS Loans work?
What if your child doesn’t qualify for a student loan refinance?
Your child’s financial history may not be strong enough to put the Parent PLUS Loan in their name. Here’s what you can do instead:
Cosign the loan. If the lender denies your child’s application, consider reapplying with you as a cosigner. Cosigning could help them qualify to refinance and get a lower interest rate. 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 refinancing the current loan, match them 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 their 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’re retired. Read more about how to lower Parent PLUS Loan payments.
Learn More: Can a Parent PLUS Loan be Transferred to Another Parent?
Want help with a Parent PLUS Loan? Let’s talk.
Dealing with Parent PLUS Loans as you near retirement can be scary. I get it. I’ve helped parent borrowers across the nation explore their options to tackle the student loan debt they borrowed to pay for their child’s education.
Let me do the same for you.
Schedule a call with me. I’ll get a better understanding of your situation and what you want to accomplish.