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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 SoFi.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
ANNUAL PERCENTAGE RATE (“APR”)
There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.
For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
ELIGIBILITY & ELIGIBLE LOANS
Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).
Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.
All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.
For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.
The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.
The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.
POSTPONING OR REDUCING PAYMENTS
After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.
We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.
We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.
If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of November 8, 2019 and is subject to change.
3 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 1.9299999999999997% effective October 10, 2019.
|1.81% – 5.98%1|
|1.99% – 6.65%2|
|2.02% – 7.09%3|