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Can I transfer a Parent PLUS loan to my child?

December 10, 2018

If you borrowed money in the form of a Parent PLUS loan to pay for your child’s college education, then you may be wondering if you can transfer the loan into your child’s name for repayment.  While the Department of Education does not allow you to directly transfer a PLUS loan into another person’s name, the good news is that you still have a couple of options available to you.

Establish an Informal Repayment Arrangement

Many parents establish an informal agreement with their child whereby the child “unofficially” assumes responsibility for the PLUS loan payments.  The child can easily log in to the parents’ account at StudentLoans.gov on a regular basis to make payments.  However, while this alternative can lessen a parent’s monthly financial burden, assuming parent and child cooperate, it does nothing to absolve the parent of legal liability for repayment of the loan.

Refinance with a Private Lender

Parents and children who wish to formally transfer repayment responsibility for a Parent PLUS loan can refinance the loan in the child’s name.  For-profit lenders, such as SoFi, Earnest, Laurel Road, Common Bond, and Citizens Bank, will issue a private loan to the child, who can use the proceeds to repay the PLUS loan on a parent’s behalf.  To be eligible to receive a private loan, the child must pass a credit check without a co-signer. The child must also submit information regarding his or her income, employment, and degree (the child cannot still be a student).  Prospective lenders want to see that the child has a low debt-to-income ratio and stable employment income. Typically, the child must have earned a bachelor’s degree or higher.

Refinancing with a private lender accomplishes the intended purpose of transferring repayment responsibility for a PLUS loan to the child.  However, parents and children should clearly understand that the protections and repayment options offered by the U.S. Department of Education will be forfeited.  A few of the programs and benefits associated with federal student loans, and not typically offered by private lenders, include:

  • Loan forgiveness programs;

  • Income-based repayment programs;

  • Loan consolidation programs;

  • Fixed interest rates;

  • Flexible repayment terms; and

  • Financial hardship provisions such as deferment and forbearance.

Although federal protections are forfeited, refinancing may still be an attractive option.  Private lenders can sometimes offer lower interest rates than those associated with PLUS loans, resulting in lower monthly payments on the refinanced debt.  Above all, if you are a parent who needs to remove a PLUS loan from your balance sheet, then refinancing with a private lender is currently your only viable alternative.

Consider Your Options

If you choose to keep a Parent PLUS loan in your name, you have several alternatives for repaying the debt.  Before deciding to refinance with a private lender, make sure that you clearly understand all your options. You, and your child, will be grateful that you did.