How To Transfer a Parent PLUS Loan to a Student

If you’re among the 3.5 million parents who took out a parent PLUS loan to help your child pay for college, you may be wondering if you can transfer that debt to your child once they’re able to take over payments.

The federal student aid program doesn’t allow you to transfer parent PLUS loans to the student, but refinancing through a private lender may be an option. 

Current student loan refinance rates

Can you transfer a parent PLUS loan to a student?

The federal student loan system doesn’t allow parents to transfer responsibility for their parent PLUS loan to the student. When signing the promissory note, parents have full and exclusive liability for repaying the loan.

Parent borrowers who want to release themselves from the financial responsibility of PLUS loan debt can explore student loan refinancing in the private sector. This option allows the debt to be reassigned to the student as the primary borrower.

How student loan refinancing allows the transfer

When you refinance a PLUS loan, the new lender pays off the outstanding loan balance in one lump sum. The original parent PLUS loan account is then marked as “paid in full” or “closed.” 

From there, the lender creates a new refinanced student loan with the student listed as the primary borrower. This isn’t a federal transfer of the debt. Instead, it’s a new private student loan with a new interest rate, loan terms, and repayment schedule. 

Once the loan is refinanced, the parent is no longer responsible for repayment, unless they choose to cosign the new loan.

See also: Best Student Loan Refinance Lenders

Requirements to refinance in the student’s name

Qualifying for a private student loan refinance may be a challenge, depending on the student’s financial profile. Private refinancing lenders set their own underwriting criteria based on a borrower’s credit score and income.

Some lenders disclose their required minimum credit score, while others don’t. Lenders also look for adverse marks on credit histories, like past bankruptcies or defaulted loans.

Students must also demonstrate that they are employed and have the means to repay the refinanced loan independently. Documents, such as pay stubs or filed tax returns, may be required for income verification.

If the student is unable to meet a lender’s requirements to refinance, there may still be a path forward.

“Lack of credit does not mean a student has adverse credit, but it may result in a cosigner's need when combined with other underwriting criteria,” says Tom O'Hare, college adviser and founder of Get College Going.

Many lenders allow a cosigner if the student doesn’t qualify on their own. A cosigner, typically a parent or another trusted relative, shares equal responsibility for the debt and must repay it if the student doesn’t. 

Lenders that accept parent PLUS loan refinancing

Not all lenders allow students to refinance parent PLUS loans in their names, but these lenders are some of the few that do:

Pros and cons of transferring a parent PLUS loan

Before transferring a parent PLUS loan to a student, it’s important to weigh the tradeoffs.

Pros 

• Potential for a lower interest rate: The student borrower might qualify for a lower interest rate through refinancing, depending on their financial situation. 
• Helps the student build credit: Making on-time payments on the refinanced loan can help the student establish their credit history and build their score. 
• Lowers the parents’ debt-to-income ratio: Refinancing can benefit parents by lowering their total debt-to-income ratio, which can improve their credit profile. 
• Allows parents to redirect their budget to other priorities: Parents can redirect loan payments toward other goals, such as retirement savings.

Cons

• Loss of federal benefits: Once you refinance a federal loan into a private loan, it’s no longer eligible for federal repayment relief or access to loan forgiveness programs. 
• The student may still need a cosigner: If the student doesn’t fully meet the lender’s credit requirements, they may still need a parent to cosign the loan.
• Cosigner credit risk: A parent cosigner remains liable for the debt if the student doesn’t keep up with payments. If the student misses payments, both parties' credit can be impacted. 

What to consider before refinancing a parent PLUS loan

Can the student handle payments on their own?

Before refinancing a parent PLUS loan in the student’s name, consider whether the student is earning enough to manage monthly payments while covering their basic living expenses. 

“Sometimes the concern is whether or not the student has the financial capacity to handle the debt,” says Jack Wang, wealth adviser and host of the Smart College Buyer podcast. 

If payments feel tight, the student may need more time to build income or savings before taking on the debt. 

Will the student qualify for a lower interest rate? 

Refinancing typically only makes sense if the student can get a lower interest rate than the current parent PLUS loan. A lower rate could reduce total interest costs and lower the loan’s monthly payment. 

To see what rates you might qualify for, it’s a good idea to prequalify with several lenders and compare multiple loan offers side-by-side.

See also: Should I Refinance My Student Loans?

Is now the right time to transfer the debt?

If the student’s earning potential is growing and the parent wants to reduce debt before retirement, it may be a good time to transfer a parent PLUS loan.

“Parents who have borrowed through the federal program may be approaching retirement age and begin to lack the financing to liquidate the loan over time,” says O’Hare. “A younger student borrower's age and potential for increased income are prime reasons to make the switch.” he adds. 

“Once the debt is transferred, a parent can agree to assist in liquidating the loan by making periodic payments.”

Are you comfortable losing federal protections and benefits?

If you currently use federal repayment options or forgiveness programs, refinancing a parent PLUS loan may not be the right move. 

For example, parents who plan to pursue Public Service Loan Forgiveness (PSLF) or forgiveness through the Income-Contingent Repayment (ICR) Plan may want to keep the loan within the federal system.