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As a parent, you might have taken out parent PLUS loans to help your child with their education. But as you’re getting closer to retirement age and managing multiple financial priorities, you might start to wonder how you can lessen some of the burden associated with repayment.
Parent PLUS Loans carry a 7.6% interest rate as of July 2018, which is on the higher end for federal student loans and can make it difficult to get ahead on principal payments.
Another option? Transfer your parent PLUS loans to your child’s name. If you and your child both agree on this move, you could pass on the responsibility of paying back these loans to your son or daughter.
Keep reading to learn more about how to move parent PLUS loans to your child’s name and whether it’s right for you.
How to transfer parent PLUS loans to your child
Parent PLUS loans are made directly to parents for their child’s education. The way things are set up now through the Department of Education, parents cannot transfer loans to a child, and parents are solely responsible for paying back the loan.
But there’s a way to get around this: refinancing parent PLUS loans in your child’s name. To refinance parent PLUS loans, your child must apply. They would have to supply information about their credit score, school and degree.
Each lender will have varying eligibility requirements, but typically, lenders want the child to prove they have the financial means to pay back the loan themselves.
SoFi, Laurel Road, and CommonBond consider information such as income, school and type of degree. To qualify, your child must have earned a bachelor’s degree or higher.
Dan Macklin, a co-founder of student loan refinancing company SoFi, noted similar eligibility requirements.
“SoFi will take into account several factors, such as (the applicant’s) eligibility, education, career experience, monthly income relative to expenses and financial history in determining whether to refinance a parent PLUS into a loan in the graduate’s name,” Macklin said.
To transfer the Parent PLUS loans to your child, follow these three steps:
- Ask your child to apply for a refinancing loan in their name with a lender like SoFi, Laurel Road or CommonBond. You can help your child complete the application, but the lender will approve or reject it based on their information alone.
- Include the parent PLUS loan on the refinancing application and note that it is under your name.
- If approved, the lender will issue your child a new loan, which can be used to pay off your parent PLUS loan.
The new loan may have different terms and conditions, and potentially a lower interest rate as well. Unlike the parent PLUS loan, the new loan will be entirely in your child’s name.
“Transferring a loan from parent to child absolves parents from the debt obligation and enables the child to select the appropriate loan terms,” Macklin said. “The child may be able to reduce monthly payments on the outstanding debt, as some parent PLUS loans have rates as high as 8.50%. It also enables the parent to refocus their own goals, such as saving for retirement.”
Review the benefits of refinancing parent PLUS loans
There are many benefits to refinancing Parent PLUS loans, including:
- Your child could net a lower interest rate on the parent PLUS loan.
- The parent would be released from the loan.
- The child could build credit by making on-time payments.
If you refinance parent PLUS loans and pass on the responsibility to your child, they could stand to save thousands of dollars in interest. Also, they could take advantage of the unique benefits offered by some lenders, such as unemployment protection, career service and networking events.
Consider the drawbacks of refinancing parent PLUS loans
Before you decide to refinance your parent PLUS loans, there are some downsides you should also be aware of, including:
- By refinancing, you’ll lose federal student loan benefits such as access to income-driven repayment options and Public Service Loan Forgiveness.
- The legal liability for the loans will be transferred to the child, as the parent PLUS loans will be paid off, and your child will now repay the new loan.
- The process is not reversible.
If you want to refinance parent PLUS loans, you and your child should be on the same page. Both you and your child should understand the financial and legal implications of refinancing and also have a firm grasp of what you may be giving up.
Wondering if refinancing is a good idea for you? Answer a few questions below and we’ll help you find the right solution! Otherwise, scroll down to read on.
Parents should share the details of the loan, including the total balance, with the child and help pick a repayment term that offers affordable monthly payments and fits their lifestyle.
In many cases, borrowers can check their potential rate without affecting their credit score (often known as a “soft pull” on credit).
Before you and your child transfer parent PLUS loans, check out each lender’s eligibility requirements and borrower perks to see if refinancing is right for you. By shopping around first, you can likely get a better deal.
If a real-life example might help you picture the possibilities, learn about how this woman transferred a PLUS loan to her son.
Andrew Pentis contributed to this report.
Interested in refinancing your Parent PLUS loans into your child's name?Here are the top lenders of 2019!
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1 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
2 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
3 Important Disclosures for SoFi.
|2.47% – 6.99%3|
|3.24% – 6.66%1|
|2.61% – 7.35%2|