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Guide to Transferring Parent PLUS Loans to Students

Can You Transfer a Parent PLUS Loan to the Student?
Sulaiman Abdur-Rahman
Sulaiman Abdur-RahmanUpdated June 7, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Editor’s Note: Since the writing of this article, the Biden administration has extended the pause on federal student loan repayment through Dec. 31, 2022. 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 September 2020 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. 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. One of the advantages of refinancing student loans is it may provide you with a lower interest rate. One of the big disadvantages of refinancing student loans with a private lender, however, is you’ll be forfeiting federal benefits. Refinancing federal student loans will remove your access to income-driven repayment plans offered by the federal government. The difference between private and federal loans is that federal student loans are provided exclusively by the U.S. Department of Education. Banks, credit unions, online lenders, and select state-based or state-affiliated organizations may offer private student loans. You can refinance federal student loans with private student loans. The federal government in March 2020 suspended student loan payments in response to the COVID-19 pandemic. After a number of extensions, the moratorium on student loan payments is scheduled to be lifted on August 31, 2022. Some elected officials have talked about broad student loan forgiveness of federal student loans. Meanwhile, people who served in the U.S. armed forces may qualify for military student loan forgiveness.

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. Some borrowers may never finish repaying a student loan during their lifetime. What happens to student loans when you die is the debt might be discharged, although some lenders may demand repayment from your estate. Some may ask, how long does it take to pay off student loans? It can take borrowers between 10 to 30 years to pay off federal student loans and five to 25 years to pay off private student loans. The average student loan debt across the United States is tens of thousands of dollars per borrower, according to EducationData.org. In 2021, researchers from that organization found average federal student loan debt stood at $36,510 per borrower, while private student loan debt averaged $54,921 per borrower. Some of the ways of using your student loans may include using the funds toward tuition and fees, among other expenses related to attending college. Borrowers can make more than the minimum payment when paying off student loans.

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 replaces your original debt with the terms and conditions of a new loan agreement. 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. An interest rate is a finance charge that adds to the cost of a loan. Refinancing a parent PLUS loan for a shorter-term agreement 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 refinanced loan agreement that replaces 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 income-driven repayment plans offered by the federal government.

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 interest charges over a longer term than the original loan.

Refinance Your Student Loans With Lantern

If you want to refinance student loans, Lantern by SoFi can help you compare student loan refinance options. Refinancing might be right for you if you can lock in a lower interest rate. Explore your options today and consider applying with a lender of your choice.

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?
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About the Author

Sulaiman Abdur-Rahman

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 currently serves 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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