Guide to Transferring Parent PLUS Loans to Students

Can You Transfer a Parent PLUS Loan to the Student?

Sulaiman Abdur-RahmanUpdated August 23, 2023

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Parent borrowers who took out Direct PLUS Loans to pay for their child’s education cannot transfer this federal loan to their child. Parent borrowers are the legally responsible party for repaying parent PLUS loans.A congressman introduced legislation in the U.S. House of Representatives in June 2022 seeking to allow parents to transfer PLUS loans to a child. The bill gained no support and failed to become law.Although parents cannot transfer a federal parent PLUS loan to their child directly, parents may refinance PLUS loans in their child’s name. Below we highlight some of the pros and cons of refinancing your parent PLUS loans.

What Is a Parent PLUS Student Loan?

A parent PLUS student loan is a specific federal loan given to parent borrowers to help parents pay for their child’s postsecondary education expenses. The federal government requires Direct PLUS Loan applicants to sign a master promissory note as a condition of receiving federal Direct PLUS funds.A master promissory note, also known as an MPN, is a legally binding agreement. Parent borrowers who sign an MPN promise to repay the Direct PLUS Loan. The funds from a parent PLUS loan may help pay for a child’s education to attend college as an enrolled student, including using the funds toward tuition and fees. The biological or legal adoptive parent of the student is responsible for repaying the debt.

Refinancing Parent PLUS Loans

Refinancing parent PLUS loans can allow parent borrowers to replace their federal loans with the terms and conditions of a private loan agreement. To refinance your student loans, you may submit a student loan refinancing application with a private lender and see if you qualify. Private lenders can set their own underwriting standards, but some may require applicants to have steady income and good credit. For subprime borrowers, it might be difficult to refinance student loans with bad credit.Refinancing student loans may provide you with a lower interest rate, but there are some disadvantages of refinancing student loans to consider:

Refinancing for a longer term may increase your total interest costs
Refinancing federal student loans will remove your access to federal income-driven repayment (IDR) plans
Private education loans, including refinanced student loans, are not eligible for the U.S. Department of Education’s student loan forgiveness programs
People who serve in the U.S. armed forces may qualify for military student loan forgiveness
What happens to student loans when you die is the debt might be discharged, although some lenders may demand repayment from your estate
Borrowers can make more than the minimum payment when paying off student loans, which can minimize your interest costs

The difference between private and federal loans is that federal student loans are provided or guaranteed by the U.S. Department of Education, whereas banks, credit unions, online lenders, and state-affiliated organizations can offer private student loans not guaranteed by the federal government. You can refinance federal Direct PLUS Loans with private student loans.Recommended: Average Student Loan Debt In the United States

Can a Parent PLUS Loan be Transferred to the Student?

A parent PLUS loan cannot be transferred to the student, according to the U.S. Department of Education’s Federal Student Aid Office. Parent borrowers are the legally responsible party for repaying parent PLUS loans.While the parent PLUS loan itself cannot be transferred to the student, parent borrowers can refinance their federal loans with a private lender. Under student loan refinancing, private lenders can pay off your existing student loans and give you a new loan with different terms and conditions.Refinancing a parent PLUS loan can free you from the terms and conditions of the original master promissory note or MPN you signed. The refinanced loan can be made in the name of the child if the child is willing to accept financial responsibility for repaying the new loan.Repaying a parent PLUS loan is the parent’s responsibility, but parents can effectively offload their financial responsibility through refinancing.

Pros of Transferring Parent PLUS Loan to Child

You cannot transfer a parent PLUS loan to your child directly. Your child, however, can accept financial responsibility with a refinanced loan agreement that replaces the parent PLUS loan. Here are some pros of refinancing parent PLUS loans in your child’s name:

Child Can Assume Financial Responsibility

A child can legally and willingly assume the financial responsibility of making repayments on a refinanced parent PLUS loan. This can improve a parent’s debt-to-income ratio by placing the refinanced loan in the child’s name.

New Terms and Conditions

Refinancing a parent PLUS loan prepays and replaces your federal debt with a private education loan. The refinanced loan can be made in the name of the parent or child, and the borrower may get a lower interest rate and lower monthly payment. (Refinancing for a longer term may increase your total interest costs.)Interest is a finance charge that adds to the cost of a loan. Refinancing parent PLUS loans for a shorter term and lower interest rate can minimize the borrowing costs for the parent or child.

Cons of Transferring Parent PLUS Loan to Child

As mentioned earlier, you cannot transfer a parent PLUS loan to your child directly. Your child, however, can accept financial responsibility with a private refinance loan that pays off the parent PLUS loan. Here are some cons of refinancing parent PLUS loans in your child’s name:

Strips Away Federal Benefits

Replacing a parent PLUS loan with a newly refinanced private loan means the borrower will forfeit federal benefits. For example, refinancing federal student loans will remove your access to federal IDR plans.All IDR plans can end with a borrower’s outstanding balance being forgiven at the end of the repayment period. Forgiveness may come after 20 or 25 years under any of the IDR plans, but forgiveness may come earlier for some enrollees in the Saving on a Valuable Education (SAVE) Plan.Borrowers with original principal balances of $12,000 or less may be eligible for forgiveness of any remaining balance after making 10 years of payments under the SAVE Plan, according to the Federal Student Aid Office.

Replaces Old Debt With New Debt

Refinancing a parent PLUS loan in a child’s name simply replaces old debt with new debt. The child in this case may shoulder a new burden of debt that can substantially raise the child’s debt-to-income ratio.It’s also possible for the cost of the newly refinanced loan to be greater than the original PLUS loan costs. A refinanced loan in some cases can have a higher interest rate or more total interest costs over a longer term than the original loan.Recommended: How Long Does It Take To Pay Off Student Loans?

Refinance Your Student Loans With Lantern

If you want to refinance student loans, Lantern by SoFi can help you compare student loan refinance rates. Refinancing might be right for you if you can lock in a lower interest rate. (Refinancing for a longer term may increase your total interest costs.)Lantern can help you compare student loan refinance rates and find the best one for you.

Frequently Asked Questions

Can I transfer Parent PLUS loans to someone else?

Can Parent PLUS loans be discharged?

Do Parent PLUS loans go away if the student dies?

Photo credit: iStock/Tempura

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About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and served as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.

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