Transferring Parent Loans to a Student Explained
Helping pay for a college education is a huge goal for a lot of parents. This may lead to Parent PLUS Loans. This article explains how you can transfer this loan to the student.
Parents often take out student loans to help their children -- but may eventually want to transfer Parent PLUS loans to the student or to transfer private loans to students in order to avoid ongoing financial responsibility for the debt.
The good news is that this is possible -- but figuring out how to transfer private loans or a Parent PLUS loan to the student can be more difficult than it seems. Here's what you need to know about making the switch, so children become responsible for student loan debt that their parents originally took on.
Can Parent PLUS Loans be transferred to the student?
Parent PLUS Loans are federal student loans from the Department of Education. When a parent has taken out PLUS Loans, they are responsible for covering the debt in the eyes of the government.
Unfortunately, the government does not allow these federal loans to be transferred into the child's name. So, the technical answer to the question can parent PLUS loans be transferred to the student is not through the federal system – only through refinancing with private loans (see below for explainer).
This is potentially the best option to make children responsible for repaying these PLUS Loans. In some cases, it's possible for a student to take out a private student loan refinance loan to repay the federal Parent PLUS Loan. The student must qualify to do that, though, and there could be some downsides.
How to transfer Parent PLUS Loan to student
If a student wants to take legal responsibility for the debt, the only way to transfer a Parent PLUS loan to the student is to refinance with a private student loan lender.
Not all private lenders allow this, so it will be important to shop around for one that does – Splash, for example, does offer this ability to transfer loans from the parent's name to the student. And the student will need to qualify for a private refinance loan. That means they must have:
- Solid proof of sufficient income to repay the loan
- Limited other debts (typically, total debt including the new refinanced loan must be under 50% of the borrower's income)
- A good credit score (often 700 or above)
If a student can qualify for a refinance loan at a competitive rate, it may be possible to reduce the interest cost compared with the parent PLUS loan. Juno can help. Juno gets groups of borrowers together and negotiates on behalf of the group to make lenders compete for their business. This helps borrowers qualify for refinance loans at competitive rates, making refinancing more affordable.
Should you transfer your Parent PLUS Loan to the student?
Determining how to transfer Parent PLUS Loan to the student isn't the only thing that's important. You also need to think about whether making this financial move is a good idea.
See, Parent PLUS Loans are federal student loans and come with many of the benefits other federal student loans offer. There are flexible repayment options, and it may even be possible for parents to qualify for loan forgiveness or income-driven payments if they consolidate their PLUS Loans.
By transferring these loans to a private loan in the student's name, these advantages of federal student loans will be lost. Giving up these benefits isn't always worth it, especially if loan forgiveness is a possibility.
Transferring private parent student loans
If you took out private student loans as a parent, you might be able to transfer those loans to the student by refinancing with a different private lender. In this case, you're simply converting one private loan into another, so you aren't giving up federal benefits, and there's little downside.
The student will need to qualify for the student loan refinance loan, though. And it makes sense to make this switch only if the student qualifies at a lower interest rate than on the current parent loan. Otherwise, transferring the debt can just make payoff more expensive.
Not all lenders allow a private loan taken in a parent's name to be refinanced into a student's name, but some do. You'll need to research lenders carefully and find one that allows this as an option. Splash, for example, does offer the ability to transfer loans from the parent's name to the student.
Benefits of transferring parent loans to a student
There are some big advantages if you make the decision to transfer private student loans to a student or to transfer a Parent PLUS loan to the student. Some of the benefits include the following:
- You can often reduce the interest rate if the student qualifies for a more affordable loan
- Parents can free up money for other financial goals, such as saving for retirement
- The debt will no longer show up on the parent's credit report, so it will not continue affecting their debt-to-income ratio (which could impact their ability to qualify for other loans)
- Students will become legally responsible for the debt and thus eligible for the student loan tax deduction (if they otherwise qualify)
Downsides of transferring parent loans to a student
There are also some disadvantages to think about before considering how to transfer a private or Parent PLUS loan to the student. Here are some of the downsides:
- You could lose access to federal student loan benefits if Parent PLUS Loans are refinanced into private loans.
- Not all students can qualify for a refinance loan.
- There are limited choices of lenders that allow students to refinance their parents' loans into their own name. Splash, for example, does offer the ability to transfer loans from the parent's name to the student.
Is transferring parent loans right for you?
Ultimately, you will need to carefully consider the type of loans the parents have, and the new refinance rate the student qualifies for before deciding whether the student should refinance parent loans.
If you decide to move forward, Juno is here to help you get the best student loan refinance rates and rewards possible. We'll get you together with a group of borrowers and negotiate on behalf of the entire group to get each individual borrower the best possible rate. To learn more, Join Juno today.
Christy Rakoczy Bieber
Christy Rakoczy Bieber is a full-time personal finance and legal writer. She is a graduate of UCLA School of Law and the University of Rochester. Christy was previously a college teacher with experience writing textbooks and serving as a subject matter expert.
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