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Can You Transfer a Parent PLUS Loan to the Student?

The straightforward answer is: No, you cannot directly transfer a Parent PLUS Loan to the student. Parent PLUS Loans are specifically designed for parents to borrow on behalf of their dependent children to finance their education. The legal obligation and responsibility for repayment rest solely with the parent borrower. There is no mechanism for a direct transfer of the loan’s liability to the student.

However, while a direct transfer isn’t possible, there are indirect ways students can alleviate the burden of Parent PLUS Loans for their parents. We will explore these options, providing a comprehensive understanding of the landscape and empowering families to make informed decisions.

Understanding Parent PLUS Loans

Parent PLUS Loans are federal student loans available to parents of dependent undergraduate students to help cover education expenses. Unlike other federal student loans, Parent PLUS Loans require a credit check but do not have income requirements. This means that as long as the parent has a satisfactory credit history, they can borrow up to the full cost of attendance, minus any other financial aid the student receives.

Key Features of Parent PLUS Loans:

Borrower: The parent is the borrower, legally responsible for repayment.
Eligibility: Requires a credit check but no income requirements for the parent. The student must be enrolled at least half-time at an eligible school.
Loan Amount: Up to the cost of attendance minus other financial aid.
Interest Rate: Fixed interest rate set annually by Congress.
Repayment: Repayment typically begins immediately after the loan is fully disbursed, although deferment options are available.

Indirect Ways to Alleviate Parent PLUS Loan Debt

Although a direct transfer is impossible, several strategies can indirectly shift the financial responsibility, or at least ease the burden, from parent to child.

1. Student Refinancing After Graduation

This is arguably the most common and effective method. Once the student graduates and secures stable employment, they can refinance the Parent PLUS Loan into a private student loan in their own name. This essentially pays off the Parent PLUS Loan, with the new loan becoming the student’s responsibility.

Considerations for Refinancing:

Creditworthiness: The student’s credit score and income will be key factors in qualifying for a refinancing loan and determining the interest rate.
Interest Rates: Compare interest rates from multiple lenders to secure the best possible terms.
Loan Terms: Consider the length of the loan term. Longer terms mean lower monthly payments but higher overall interest paid. Shorter terms result in higher monthly payments but lower overall interest paid.
Cosigner: If the student has limited credit history, a cosigner (potentially the parent) might be required. However, the goal is to eventually release the cosigner from the loan.

2. Open Communication and Payment Agreements

While the parent remains legally responsible for the loan, families can establish a formal or informal agreement where the student contributes to the monthly payments. This requires open and honest communication about finances and a commitment from both parties.

Strategies for Payment Agreements:

Budgeting: Create a joint budget to determine how much the student can realistically contribute each month.
Contractual Agreements: While not legally binding in the same way as a loan, a written agreement can help clarify expectations and responsibilities.
Tracking Payments: Use a shared spreadsheet or budgeting app to track payments and ensure accountability.

3. Student Loan Forgiveness Programs (Indirect Impact)

While not a direct transfer, if the student works in a qualifying public service job after graduation, they might be eligible for Public Service Loan Forgiveness (PSLF). If the parent consolidates the Parent PLUS Loan into a Direct Consolidation Loan, and then chooses the Income-Contingent Repayment (ICR) plan, any remaining balance may be forgiven after 25 years. While the parent borrower must pursue the loan forgiveness, the student’s career choice and income impact the possibility of loan forgiveness.

Important Considerations for PSLF and ICR:

Employment Requirements: The student must work full-time for a qualifying public service employer.
Repayment Plan: The parent must consolidate and choose the ICR plan.
Tax Implications: Loan forgiveness may be considered taxable income.

4. Contributions to a Dedicated Savings Account

Instead of directly contributing to loan payments, the student could contribute to a dedicated savings account that the parent can use to make loan payments. This provides the parent with more control over the funds while still allowing the student to contribute financially.

Benefits of a Dedicated Savings Account:

Flexibility: The parent can access the funds when needed.
Control: The parent retains control over the money.
Savings Growth: The savings account can earn interest, potentially offsetting some of the interest accruing on the Parent PLUS Loan.

5. Estate Planning Considerations

Parents may consider incorporating the Parent PLUS Loan into their estate planning. This could involve setting aside assets to cover the loan balance in the event of their death.

Key Aspects of Estate Planning:

Life Insurance: A life insurance policy can provide funds to pay off the loan balance.
Will or Trust: The will or trust can specify how the loan should be handled after the parent’s death.

Important Considerations and Potential Risks

Before pursuing any of these strategies, it’s crucial to be aware of the potential risks and drawbacks.

Refinancing Risks: Refinancing into a private loan means losing federal loan protections like income-driven repayment plans and potential loan forgiveness programs.
Credit Impact: Refinancing requires the student to have good credit. If the student defaults on the refinanced loan, it can negatively impact their credit score.
Communication Challenges: Payment agreements require open and honest communication, which can be challenging for some families.

Frequently Asked Questions (FAQs)

1. What happens to a Parent PLUS Loan if the parent borrower dies?

In the event of the parent borrower’s death, the Parent PLUS Loan is typically discharged. Documentation, such as a death certificate, will need to be provided to the loan servicer.

2. Can a Parent PLUS Loan be discharged if the parent becomes disabled?

Yes, Parent PLUS Loans can be discharged if the parent borrower becomes totally and permanently disabled. The parent will need to provide documentation from a physician or the Social Security Administration.

3. Can a student take over the Parent PLUS Loan payments without refinancing?

Legally, no. The parent remains the borrower and is legally responsible for the loan, regardless of who is making the payments.

4. What are the interest rates like on Parent PLUS Loans compared to other student loans?

Parent PLUS Loans generally have higher interest rates than Direct Subsidized and Unsubsidized Loans for students. This is because they don’t have income requirements, only a credit check.

5. Are there any income-driven repayment plans available for Parent PLUS Loans?

Yes, but only if the loan is consolidated into a Direct Consolidation Loan and the parent chooses the Income-Contingent Repayment (ICR) plan. Other income-driven repayment plans are not available for Parent PLUS Loans.

6. What is the difference between a Direct Subsidized Loan and a Parent PLUS Loan?

Direct Subsidized Loans are for students with financial need and the government pays the interest while the student is in school and during deferment periods. Parent PLUS Loans are for parents of dependent undergraduate students and do not have income requirements, but do require a credit check. Interest accrues on Parent PLUS Loans from the date of disbursement.

7. Can grandparents or other relatives take out a Parent PLUS Loan?

No. Parent PLUS Loans are only available to biological or adoptive parents of dependent undergraduate students.

8. What happens if a parent refuses to pay the Parent PLUS Loan?

The parent’s credit score will be negatively impacted, and the loan could go into default. The government can also garnish wages or Social Security benefits to recover the debt.

9. Can a student refinance a Parent PLUS Loan with a cosigner other than the parent?

Yes, the student can refinance the loan with any eligible cosigner who meets the lender’s requirements.

10. What are the tax implications of a student paying a Parent PLUS Loan?

Generally, the parent borrower is the one who can deduct the student loan interest paid on the Parent PLUS Loan, even if the student is making the payments. Consult with a tax advisor for personalized advice.

11. Can a Parent PLUS Loan be transferred to the student as part of a divorce settlement?

While a divorce settlement can outline who is responsible for making the payments, the legal responsibility for the loan remains with the parent who originally borrowed it. A direct transfer of the loan is not possible. The student may consider refinancing after graduation in this scenario.

12. What resources are available to help families manage Parent PLUS Loan debt?

Several resources are available, including:

Financial Aid Offices: College financial aid offices can provide guidance on loan repayment options.
Credit Counseling Agencies: Non-profit credit counseling agencies can offer advice on budgeting and debt management.
Student Loan Servicers: Loan servicers can provide information on repayment plans and loan consolidation.

Navigating Parent PLUS Loans requires careful planning and open communication. While a direct transfer to the student isn’t possible, the strategies outlined above can provide viable solutions for families seeking to manage and alleviate this financial burden. Remember to carefully weigh the pros and cons of each option and seek professional advice when needed.