Advertiser Disclosure

College Students and Recent Grads

How to Transfer a Parent PLUS Loan to the Student: Is It Possible?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

Reviewed By

If you’ve taken out a federal parent PLUS loan to help a child pay for college, you may have already started making loan payments while your child is in school. Or, perhaps you’ve deferred the payment until after graduation.

When you borrow a parent PLUS loan, the money gets sent to your child’s school. However, as the borrower, you are legally responsible for repaying the loan.

Sometimes, a parent and child may have an arrangement where the child starts making payments or reimbursing a parent once he or she can afford it. However, these are informal arrangements and don’t reflect the legal liability that you have as the borrower. If you want the child to take on full responsibility for the loan, you’ll have to figure out a way to transfer the debt to the child’s name.

Can a parent PLUS loan be transferred to the student?

Yes, transferring a parent PLUS loan to a child is possible. However, the U.S. Department of Education, which issues parent PLUS loans and lends money to students for educational costs, doesn’t offer a way to transfer a parent PLUS loan.

Even if your child has his or her own student loans and is making monthly payments to the same loan servicer that you’re working with, there’s no way to transfer the parent PLUS loan to the child within the federal student loan system.

To transfer the debt, the child will need to qualify for and take out a loan from a private lender and then use the money to pay off the parent PLUS loan. The new loan doesn’t have to be a student loan. Children could take out a personal loan or use a cash-out refinance if they own a home, and then give the money to a parent to pay off the parent PLUS loan.

But there are student loan refinancing companies that let borrowers refinance a parent PLUS loan into the child’s name. The loan may remain a qualified educational loan, which means eligible borrowers may be able to deduct up to $2,500 in interest payment from their taxes each year. The refinancing company will also generally pay off the other student loans directly, rather than sending the borrower cash.

Steps for children who want to take over parent PLUS loans

If you’re a student or former student who wants to transfer a parent PLUS loan to your name, refinancing the loan with a private student loan refinancing company could your best option.

You can choose which loans you want to refinance, including some of your own student loans. Refinancing could even save you money if you can qualify for a lower interest rate, and combining multiple loans into one new loan can make managing your loans easier.

However, carefully consider your options before refinancing your federal student loans. After refinancing, your new private student loan won’t be eligible for federal repayment, assistance and forgiveness programs.

Whether or not you want to refinance your own loans, if you’re looking to transfer a parent PLUS loan, consider taking these four steps:

1. Review your budget

Refinancing your student loans could lead to lower monthly payments if you’re only refinancing your own loans. However, if you’re taking on additional debt by adding in a parent PLUS loan, your monthly payments may increase. You can use a student loan refinance calculator to estimate the change in your monthly payment amount.

Consider how your new monthly payments will impact your budget, and whether you’ll still be able to cover all your living expenses. If you don’t think you can afford all the payments, you may not want to transfer the parent PLUS loan.

2. Find lenders that offer parent PLUS loan transfers

Many lenders offer student loan refinancing, but some lenders only let your refinance your own student loans. If you want to transfer a parent PLUS loan, you’ll need to find lenders that let you include a parent PLUS loan into the child’s new loan. For example, CommonBond, SoFi and Laurel Road — some of the top private student loan refinancing companies — all offer parent PLUS refinancing that transfers the debt to the student.

3. See if you’re eligible

Once you’ve identified a few lenders that let you transfer parent PLUS loans, review their basic eligibility criteria to see if you’ll qualify for refinancing.

Your citizenship status, state of residence, whether you received a bachelor’s degree and how much debt you’re refinancing could impact your eligibility. Your monthly income could also be a factor, as lenders want to be certain you can afford your loan payments.

Additionally, your credit history and score can determine whether a lender will approve your loan application and the terms it offers. Some lenders offer a soft credit preapproval, which lets you see if you qualify for refinancing and your estimated loan terms without affecting your credit score. With others, you won’t know what terms you’ll get until you apply.

You could check your credit score for free online to help estimate your chances of getting approved. Although lenders may use different credit scoring models to evaluate applicants, and a credit score isn’t the only important factor, you may need a minimum score of around 660-680 to qualify for refinancing from some of the top lenders.

You also may want to review your credit reports for negative marks. For example, regardless of your score, some lenders may not approve your application if you have recent collections accounts or a bankruptcy on your credit reports. You may need to wait until the negative items fall off your reports (which can take seven to 10 years), and can focus on building a good credit history with on-time payments.

4. Compare your loan offers and complete a loan agreement

Once you have a list of lenders that you think may be a good fit, you could start submitting applications.

When you submit a complete application for student loan refinancing, the resulting hard inquiry on your credit report could have a small, negative impact your credit score. And multiple inquiries can sometimes increase the damage. However, multiple hard inquiries from student loan applications that occur within a 14-day period (depending on the type of credit score) only count as one inquiry for scoring purposes. Therefore, shopping lenders and comparing offers during a short period could help you secure the lowest rate possible without causing excessive damage to your credit.

Once you figure out which offer is best, and if you decide to move forward, you’ll need to complete the application process. You may need to upload verification documents, such as recent pay stubs, tax returns or a job offer to verify your income. You’ll also have to sign the loan agreement, which you may be able to do electronically.

The private lender will then generally send payments to your loan servicer as well as your parent’s loan servicer to pay off those student loans. You should both continue making payments as usual until you’ve confirmed the original loans were paid off.

Pros of transferring your parent PLUS loans

Transferring your parent PLUS loan to a child may offer several benefits for both parties.

The debt will no longer impact the parent’s eligibility for financing. Decreasing the debt that’s in the parent’s name will lead to a lower debt-to-income ratio, which can help the parent qualify for loans and lines of credit at lower rates.

The child may be making the loan payments anyway. If you have an informal agreement that the child makes the loan payments or reimburses the parent, transferring the parent PLUS loan will let the legal responsibility match your arrangement.

The child can build credit. After transferring the loan, the child can build his or her credit by making on-time loan payments. However, a late payment could now hurt the child’s credit.

The loan’s interest rate could drop. Depending on the loan offers that the child receives, the refinanced loan could have a lower interest rate. A lower rate could lead to lower monthly payments and long-term savings.

Cons of transferring parent PLUS loans

There are also potential drawbacks to transferring your parent PLUS loans. Consider these carefully, because you can’t undo the transfer once it’s complete.

The borrower loses access to federal programs. Private student loans aren’t eligible for federal repayment plans, forgiveness programs or forbearance and discharge options. Therefore, if you’re having trouble making payments, you may have fewer options when dealing with your private lender.

The child might not qualify for a good rate. If the child doesn’t qualify for an equal or lower interest rate, the long-term cost of repaying the loan could increase. When there isn’t a pressing reason to transfer the loan, you may want to wait to refinance while the child builds their credit.

Additional parent PLUS loan repayment options

If your child doesn’t qualify to refinance the parent PLUS loan in his or her name, or you decide against the transfer for another reason, there still may be other options for your loan.

Consider a different federal repayment plan

If you’re struggling to afford monthly parent PLUS loan payments, you may want to consider switching your repayment plan. The graduated plan starts with a lower rate, which usually increases every two years. There’s also an extended plan, which increases your term to 25 years, versus 10 with the standard or graduated plans, and leads to a lower monthly payment (but more interest paid over time).

Parent PLUS loans borrowers are also eligible for the income-contingent repayment (ICR) plan, if you first consolidated your parent PLUS loan (or loans) into a federal direct consolidation loan. The ICR plan will adjust your monthly payments based on your discretionary income, and any remaining balance will be forgiven after you make payments for 25 years. You may, however, have to pay income taxes on the forgiven amount.

Look into federal forgiveness and discharge options

Parent PLUS loans are eligible for some of the same federal cancellation and discharge programs as federal student loans lent directly to students. For example, the debt may be discharged if your child’s school closed and he or she wasn’t able to complete the program.

You could also get part of the loan forgiven through the Public Service Loan Forgiveness. You’ll need to consolidate your loan and switch to the ICR plan specifically. To qualify, you (not your child) must work for an eligible employer, such as a government or nonprofit tax-exempt 501(c)(3) organization, and make 120 qualified monthly payments.

Additional student loan forgiveness or repayment programs

There are a variety of federally funded and private student loan repayment assistance (LRAP) programs that could also help you with your loan. Many of these programs are targeted at people in specific professions, such as those who work in health care, law or the military. And there may be additional requirements to work in high-need areas. Depending on the program, you may receive an additional signing bonus or annual stipend that will be sent to your loan servicer to repay your student loan.

Refinance the loan in your name

Just as your child may be able to refinance his or her student loans, you may be able to refinance your parent PLUS loan with a private lender. You may be able to qualify for a lower interest rate or change your loan term, which could lower your monthly payment and may save you money over the lifetime of your loan.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Disclaimer

Student Loan
Laurel Road Bank

Refinance with Laurel Road Bank

Refinancing rates from 1.89% APR. Checking your rates won’t affect your credit score.

Advertiser Disclosure

College Students and Recent Grads

What to Do When Parents Won’t Pay for College and FAFSA Won’t Provide Aid

Written By

Reviewed By

college landscape

When you’re applying for financial aid to attend college as an undergraduate, the amount of need-based aid you qualify for is usually based on your parents’ income and assets. The Free Application for Federal Student Aid (FAFSA) calculates your expected family contribution (EFC), and individual colleges and universities then use your EFC to determine how much need-based student aid you are eligible to receive. If it is determined that your parents can reasonably cover 100% of the cost of college, you may not qualify for any need-based aid at all.

However, this process of determining need-based aid is based on the assumption that if your parents can afford to make a substantial contribution to your tuition, room, and board, they will be willing to do so.

But what if your parents simply aren’t willing to make that contribution?

If you don’t qualify for need-based aid (or only qualify for partial need-based aid) and your parents simply aren’t willing to contribute, you may feel like college is not an option. And it’s true that tuition, room, and board can be very expensive—tens of thousands of dollars per year in many cases. However, don’t give up right away. There still may be ways for you to attend college even if your parents won’t help you out financially. Here are ways to start:

1. Check the current guidelines for dependent vs. independent students

All students applying to college are considered either dependent or independent by the federal government. If you are a dependent student, your parents’ income and assets are taken into account when determining need-based aid, but if you are an independent student, only your own financial situation (and that of your spouse, if you are married) is taken into account, which means you may qualify for more need-based aid. There are several ways to qualify as an independent student, including being married, being older than a certain age, having dependent children, or being a veteran of the U.S. armed forces. The FAFSA can help you determine if you are dependent or independent. More information is also available here.

2. If you haven’t already done so, fill out the FAFSA

Even if you are a dependent student and your parents have already told you they’re not willing to contribute to college costs, you should still absolutely fill out a FAFSA. You may find that you are eligible for more aid than you think. In particular, you may have the option of taking out student loans that would help you cover the cost of college yourself, without your parents’ help. Student loans should only be taken out under careful consideration, as they can take many years to repay, but if they are the only way you are able to go to college, they may be a good option for you. 

3. Remember that need-based aid isn’t the only type of aid available

There are many merit-based scholarships and grants available that you may be able to apply for. The school(s) you’re considering attending may offer merit scholarships; check with the admissions office for details and to determine whether or not you need to submit an extra application for these awards. You can also search online for grants and scholarships that are funded by external organizations and thus can be applied to the cost of any school. Apply for as many of these grants and scholarships as possible.

4. Consider asking for help from other relatives

Is there anyone else in your family who might be willing to help you out with college costs, perhaps through a personal loan? If you do take out a personal loan from someone you know, be sure to sit down with them and draw up a written agreement about interest and repayment so there are no misunderstandings.

5. Attend a state or community college

Tuition costs vary widely from school to school, so make sure you’re considering schools at the least expensive end of the spectrum. Many state colleges offer an excellent education at a much lower cost than private schools, and community colleges in some states even offer four-year degrees.

6. Consider taking a year off to work and save money, and apply next year instead

If your parents are open to it, you might be able to live at home while working and save even more money.

7. Look into supporting yourself through college by working full-time or part-time

Carefully calculate how much it would cost you per year to attend the least expensive school possible, taking tuition, fees, books, and living expenses into account. Is there any way you could pay for this yourself, either by going to school full-time and working part-time or (more likely) by working full-time and going to school part-time?

8. Look into applying for jobs at colleges that offer free/reduced tuition to employees

Some colleges and universities allow their full-time employees to take classes for free or at a reduced cost. However, note that this may vary widely by school, and there may also be a requirement that you must work a certain number of months or years before these benefits kick in. Not having a college degree yet may also limit the number and type of jobs you are able to apply for. However, this option is worth looking into.

Combine several of the above strategies

Putting together enough money to cover the cost of college yourself can be very challenging, but you may be able to make it work through a combination of merit scholarships, personal and/or federal loans, choosing an inexpensive school, saving money before you begin, and working while you’re enrolled in classes.

Already have student loans and looking to refinance? Check out our top picks for refinancing your student loans.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Disclaimer

Student Loan
Laurel Road Bank

Refinance with Laurel Road Bank

Refinancing rates from 1.89% APR. Checking your rates won’t affect your credit score.