How to Transfer Parent PLUS Loans to Your Child or StudentAugust 25, 2021
Some parents, in order to help their children pay for college, get a Parent PLUS loan to cover the costs. Once school is over and your child has a job, though, you might be wondering: Can Parent PLUS loans be transferred to the student?
If you’re interested in having your child take over responsibility for the debt related to their schooling, here’s how to transfer a Parent PLUS loan to the student.
Can Parent PLUS loans be transferred to a student?
First of all, it’s important to note that the Department of Education 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 there isn’t a provision from the government, it is possible to learn how to transfer a Parent PLUS loan to a student. However, it requires a workaround. Instead of a direct transfer, you may be able to refinance the Parent PLUS loans to your child.
How to refinance Parent PLUS loans to a child
When figuring out how to transfer a Parent PLUS loan to your child, you need to make sure your student is ready to take on the debt. If you decide to refinance Parent PLUS loans to your child, they will need to be responsible for the debt and must be able to meet the criteria set forth by their new lender.
Signs your child is ready to take on the Parent PLUS loan
Before refinancing Parent PLUS loans to your child, make sure they are ready to take on the responsibility of paying for their own debt. Some signs your child is ready to take on their own debt include:
- Stable income. Your child should have a stable income. They need to be able to make regular payments on the loan that will now be in their name.
- History of meeting their obligations. Consider whether your child has a history of meeting their obligations. If they have made other payments in the past, such as being responsible for rent and utilities, and can handle their bills, they’re more likely to be ready to add the Parent PLUS loan payments to their budget.
- Good credit. In many cases, students can’t refinance Parent PLUS loans to their names unless they meet credit requirements set forth by a lender. Make sure your child has had the time to build their credit history.
Once you’ve reviewed the situation with your child, and they are willing to go through the process, you can begin the process of making the transfer.
Steps for how to transfer a Parent PLUS loan to your child
Your child must apply for a student loan refinance in their own name, with a lender. The application is based on your child’s information alone. This is why it’s important to make sure your child has a steady income and meets credit criteria before starting. Their application can be rejected, and you’ll still be stuck with the Parent PLUS loan.
The refinancing application should include information about the Parent PLUS loan. 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 everything is wrapped up together.
Once the loan is approved, the new lender will provide funds to pay off the various loans, including your Parent PLUS loan. Verify that your Parent PLUS loans have been paid off.
Pros and cons of refinancing Parent PLUS loans to a child
Once your Parent PLUS loan is paid off, your child is solely responsible for making payments on their new loan. If they have good credit, there’s a chance that the interest rate for the loan will be lower than what’s charged for the Parent PLUS loan. On the other hand, if your child isn’t ready for the responsibility, it could end up impacting their credit.
- Parent is no longer responsible for the loan. As long as the Parent PLUS loan exists in your name, you’re solely responsible for payments. Once the refinance is complete, you’re no longer on the hook for payments, as the loan is now in your child’s name.
- Your child may get a lower interest rate on the loan. Graduates who are well-qualified may receive a lower student loan interest rate, especially if they have a good credit score and low debt-to-income ratio.
- The new loan can help your child build credit. As long as 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.
- 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 get your own loan and pay off your child’s debt with that loan.
- Lose federal loan benefits. In some cases, Parent PLUS loans are eligible for certain federal benefits. Once the loan has been refinanced, however, it’s with a private lender and no longer eligible for these benefits.
- Your child could see damaged credit. If you complete the process to transfer Parent PLUS loans to your student before they’re ready for the responsibility, they might miss payments and this could damage their credit. They could also end up in default.
So, can Parent PLUS loans be transferred to a student? The short answer is no. However, there is a way around this by refinancing your Parent PLUS loan to your child. This offers a way for students to take over responsibility for the debt incurred for their education and potentially build credit. However, before you move forward with the process, make sure your child is ready to take on the payments without getting into financial trouble.