Can You Transfer Parent PLUS Loans to Student? A Deep Dive

The burning question: Can you transfer Parent PLUS loans to the student? The short, and frankly, often unwelcome answer is no. Direct transfer, as in, simply switching the loan from the parent’s name to the student’s name with the Department of Education, is not an option. However, don’t despair just yet! While a direct transfer isn’t possible, there are avenues and strategies that can effectively shift the financial burden, or at least mitigate it, from parent to child. This article will explore these options, offering a comprehensive overview of the possibilities and pitfalls involved.

Understanding the Parent PLUS Loan Landscape

Before diving into potential solutions, it’s crucial to understand the fundamental nature of Parent PLUS loans. These loans are designed for parents of dependent undergraduate students to help cover the cost of education. The key point is that the loan is the parent’s legal responsibility, not the student’s. The Department of Education holds the parent liable for repayment. Interest rates, loan terms, and eligibility are all based on the parent’s creditworthiness, not the student’s. This understanding is vital when considering alternative strategies.

The Refinancing Route: A Common Solution

Refinancing into the Student’s Name

The most common strategy is refinancing. While you can’t transfer the Parent PLUS loan directly to the student, a student can take out a private student loan in their own name and use that loan to pay off the Parent PLUS loan. This effectively shifts the debt responsibility from the parent to the child.

• How it Works: The student applies for a private student loan. The lender assesses the student’s creditworthiness, income, and debt-to-income ratio. If approved, the loan proceeds are used to pay off the Parent PLUS loan entirely.
• Pros: The loan is now in the student’s name, freeing the parent from the debt obligation. This can improve the parent’s credit score and financial flexibility. It can also be a good option if the student obtains better interest rates or loan terms.
• Cons: The student needs to qualify for the loan based on their credit history, income, and debt. This can be challenging for recent graduates or those with limited credit history. Refinancing into a private loan means losing federal loan protections like income-driven repayment plans and potential loan forgiveness options. Furthermore, interest rates on private loans can be higher than those on Parent PLUS loans, especially if the student’s credit is not stellar.

Considerations Before Refinancing

Before jumping into refinancing, carefully weigh the pros and cons. Consider:

• Interest Rates: Compare the interest rates offered by private lenders to the current interest rate on the Parent PLUS loan. Ensure the new rate is favorable.
• Loan Terms: Analyze the loan term offered. A longer term might lower monthly payments but increase the total interest paid over the life of the loan.
• Credit Score: A good credit score is crucial for securing a favorable interest rate. Work on improving your credit score before applying.
• Federal Loan Benefits: Be aware that refinancing into a private loan means forfeiting federal benefits such as deferment, forbearance, and income-driven repayment plans.

The Co-Signing Option: Sharing the Responsibility

If the student struggles to qualify for a private loan on their own, a parent can co-sign the loan. This means both the student and the parent are responsible for repaying the loan.

• How it Works: The student applies for a private loan and the parent co-signs, providing their credit history and income as additional security for the lender.
• Pros: The student is more likely to be approved for the loan and may receive a better interest rate due to the parent’s stronger credit profile. The responsibility for the debt becomes a shared effort.
• Cons: The parent remains liable for the loan if the student defaults. This can negatively impact the parent’s credit score. While not a complete transfer, it can provide the lender comfort in providing loans and allow the transfer to take place.

Income-Driven Repayment (IDR) and Loan Forgiveness: Indirect Strategies

While not a direct transfer, understanding Income-Driven Repayment (IDR) plans and potential loan forgiveness programs associated with federal student loans is crucial. While Parent PLUS loans are not directly eligible for all IDR plans, there are ways to make them eligible.

The Double Consolidation Loophole

Parents can consolidate their Parent PLUS loans into a Direct Consolidation Loan. They can then consolidate this loan again with another federal loan, creating a second consolidation loan. This second consolidation loan can be eligible for the Income-Contingent Repayment (ICR) plan, an IDR plan. This strategy, often called the “Double Consolidation Loophole,” allows parents to have their Parent PLUS loans considered within an IDR plan, which would provide lower monthly payments. This is not a loan transfer, but it eases the burden and has the potential of loan forgiveness after 20-25 years of payments.

Public Service Loan Forgiveness (PSLF)

If the parent works for a qualifying non-profit organization or government agency, they may be eligible for Public Service Loan Forgiveness (PSLF) after making 120 qualifying payments while working full-time. This is a significant benefit that can eliminate the remaining loan balance.

• Important Note: Ensure all eligibility requirements for PSLF are met, including working for a qualifying employer and making payments under a qualifying repayment plan (often, an IDR plan).

Creative Solutions and Open Communication

Beyond refinancing and IDR plans, consider creative solutions:

• Repayment Agreements: Parents and students can establish a formal or informal agreement outlining how the student will contribute to the loan payments.
• Budgeting and Financial Planning: Develop a comprehensive financial plan that incorporates student loan repayment.
• Open Communication: Have honest and open conversations about financial expectations and responsibilities.

Frequently Asked Questions (FAQs)

Here are some frequently asked questions to clarify common points of confusion:

FAQ 1: What is a Parent PLUS Loan?

A Parent PLUS loan is a federal student loan available to parents of dependent undergraduate students to help cover education expenses. Parents are solely responsible for repayment.

FAQ 2: Can I consolidate my Parent PLUS loan with my student’s loans?

No, you cannot consolidate your Parent PLUS loan with your student’s loans. Consolidation can only be done with loans under the same borrower’s name.

FAQ 3: Can a student take over a Parent PLUS loan upon graduation?

Directly? No. But a student can take out a private student loan and use those funds to pay off the Parent PLUS loan.

FAQ 4: What happens to the Parent PLUS loan if the parent dies or becomes disabled?

In the event of the parent’s death or total and permanent disability, the Parent PLUS loan may be discharged. Documentation is required to prove death or disability.

FAQ 5: Are Parent PLUS loans eligible for the standard Income-Driven Repayment (IDR) plans?

Not directly, but with the “Double Consolidation Loophole,” Parent PLUS loans can become eligible for the Income-Contingent Repayment (ICR) plan, which is an IDR plan.

FAQ 6: How does refinancing a Parent PLUS loan affect the interest rate?

Refinancing can result in a lower or higher interest rate depending on the student’s (or co-signer’s) credit score and prevailing market conditions. Carefully compare interest rates before refinancing.

FAQ 7: What credit score is needed to refinance a Parent PLUS loan into the student’s name?

Ideally, a credit score of 690 or higher is recommended for a good chance of approval and favorable interest rates.

FAQ 8: What are the tax implications of paying off a Parent PLUS loan with a student loan?

There are generally no tax implications for either the parent or the student when refinancing the loan. However, consult with a tax advisor for personalized advice.

FAQ 9: Can a grandparent take out a loan to pay off a Parent PLUS loan?

Yes, a grandparent could potentially take out a private personal loan and use the funds to help the parents pay off the Parent PLUS loan, but they would be responsible for the loan.

FAQ 10: What is the difference between a federal student loan and a private student loan?

Federal student loans are offered by the government and come with certain benefits, such as income-driven repayment plans and potential loan forgiveness programs. Private student loans are offered by private lenders and do not have the same federal protections.

FAQ 11: Are there any specific programs or grants to help students pay off Parent PLUS loans?

There are no specific programs or grants directly designated for paying off Parent PLUS loans. However, students can explore general scholarship and grant opportunities.

FAQ 12: What steps should parents and students take together to manage Parent PLUS loan repayment?

Establish open communication, create a budget, explore refinancing options, consider income-driven repayment plans (if applicable), and consult with a financial advisor. This collaborative approach helps to navigate loan repayment effectively.

Conclusion

While a direct transfer of Parent PLUS loans to students isn’t possible, several strategies can effectively shift the financial burden. Refinancing into a private student loan, co-signing, exploring income-driven repayment plans, and implementing creative solutions are all viable options. Ultimately, careful planning, open communication, and a thorough understanding of the available resources are crucial for successfully navigating Parent PLUS loan repayment. Don’t be afraid to consult with a financial advisor to explore personalized solutions that align with your specific circumstances.