How to Transfer a Parent PLUS Loan to a Student?

Parent PLUS Loan Transfer: Parent PLUS loans are given by the U.S. Department of Education to help parents pay for their child’s education. These loans cover costs that other forms of financial aid do not. If a parent wants to transfer this loan responsibility to their child, it is possible, but not easy.

How Parent PLUS Loan Transfer Works

Parent PLUS loans cannot be directly transferred to the student through federal programs. However, students can refinance the loan into their name after graduation by working with a private lender.

To do this the student must have strong credit, a stable income, and be ready to take on the debt. Not all lenders allow refinancing of Parent PLUS loans, and sometimes a co-signer is needed. According to Forbes, if a co-signer is required, the parent might still be responsible for some of the loan.

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Some private lenders offer a co-signer release option. This means that after a few years of making regular payments, the parent can be removed from the loan.

Benefits and Drawbacks of Transferring Loans

For Parents

Transferring the loan to the student removes the debt from the parent’s name and credit report. This can free up credit for other financial goals, such as buying a home. Additionally, if the student can refinance the loan at a lower interest rate, the overall costs may be reduced.

For Students

Taking over the loan helps the student move toward financial independence. If the student can get a lower interest rate through refinancing, they may reduce their monthly payments and overall financial burden.

There are some trade-offs. Parents will lose tax benefits from student loan interest payments if the loan is transferred to the child. Additionally, refinancing a Parent PLUS loan with a private lender means losing federal benefits like loan forgiveness programs and income-driven repayment plans.

Other Options for Paying Back the Loan

Families may choose not to transfer the loan but instead share the responsibility. For example, the student can contribute to payments while the loan stays in the parent’s name.

Pros and Cons of Refinancing a Parent PLUS Loan

Pros

When the loan is transferred to the student’s name, the parent is no longer responsible for making payments. This can help the parent improve their credit and free up money for other things.

The student also has the chance to build their credit by making on-time payments. If the student gets a lower interest rate through refinancing, they may end up paying less money overall.

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Cons

Refinancing a Parent PLUS loan means losing the protections and benefits that come with federal loans. For example, the loan may no longer be eligible for forgiveness programs or income-driven repayment plans.

Refinancing also limits flexibility since private loans usually have shorter repayment terms than federal loans. If the student needs a co-signer to qualify for refinancing, the parent may still be responsible for the loan if the student cannot make payments.

How to Transfer a Parent PLUS Loan to the Student?

Shop and Compare Lenders

Before transferring the loan, you need to find a lender that will refinance the Parent PLUS loan into the student’s name. Not all lenders offer this, but some do, including SoFi, Laurel Road, and PenFed Credit Union. It’s important to compare different lenders based on interest rates, repayment terms, and fees.

Prequalify for a Loan

If possible, the student should prequalify for a loan. This means they can find out if they qualify and get an idea of the interest rates and repayment terms without affecting their credit score. If prequalification is not available, the student should ensure their credit is in good shape before applying.

Consider Co-Signing If Needed

If the student does not have enough credit history, they may need a co-signer. The parent can co-sign the loan, meaning they will still be responsible for payments if the student cannot pay. Some lenders offer co-signer release options, which remove the parent’s responsibility after a set number of on-time payments.

Submit the Application

Once you find the right lender, the student can complete the application. They will need to provide documents like tax filings, pay stubs, and identification. If a co-signer is involved, the parent will also need to submit these documents. The application process may take a few days, and sometimes additional information will be requested.