How To Transfer a Parent PLUS Loan to a Student: Options and Alternatives

If you paid for your child's college education with a parent PLUS loan, you might want to transfer that loan to your child later on. Although directly transferring parent PLUS loans to a student isn't possible, refinancing those loans in your child's name is one option.

This guide covers how to refinance parent PLUS loans, the pros and cons, and alternatives to consider.

Can you transfer a parent PLUS loan to a student?

You can't transfer a parent PLUS loan to a student. Although these student loans can help you pay for your child's education, the federal loans are designed for parents and must stay in your name.

However, you do have options. Students who want to take on the responsibility of repaying the loan can refinance the loan in their own name through a private lender. Alternatively, you can ask your child to help repay the parent PLUS loan, even though the loan will remain in your name.

Current student loan refinance rates

Refinancing parent PLUS loans in the student's name

Your child can refinance a parent PLUS loan by applying for a new, private student loan in their own name instead of yours. The catch is that most private student loan lenders require you to have good credit or a cosigner who does. When students need a cosigner, a parent often steps in. As a cosigner to the new loan, you retain a legal obligation to repay the loan (if your child doesn't). However, many lenders offer a cosigner release option after the borrower makes a certain number of on-time payments.

Pros and cons of transferring parent PLUS loans to a student

Every financial decision has advantages and disadvantages. Before transferring a parent PLUS loan to a student, consider both sides of the equation.

One advantage to the parent would be a reduction in loan payments appearing on their credit report, which could make it easier to qualify for other loans such as a mortgage, explains Jack Wang, a wealth adviser specializing in college financial aid at Innovative Advisory Group.

That's because refinancing in the student's name means the parent is no longer responsible for loan repayment, unless they cosigned on the new loan.

“Keep in mind that parents can still help the student with the monthly payment, though. Parents just wouldn't be required to make payments,” Wang says.

Additionally, the student can use the opportunity to make on-time payments to build their credit.

But for many students, qualifying for a refinance through a private lender without a cosigner represents a significant challenge. Typically, students with no or poor credit need a cosigner to get approved for the new loan.

If the student can qualify for the refinance, with or without a cosigner, moving to a private student loan also comes with a loss of federal protections.

“A private refi loses the superior benefits of federal education loans, such as longer deferments/forbearances, income-driven repayment plans, death and disability discharges, and loan forgiveness options,” explains Mark Kantrowitz, author of “How To Appeal for More College Financial Aid.”

How to apply for parent PLUS loan refinancing

If refinancing parent PLUS loans in a student's name makes the most sense for your situation, your child can follow these steps:

1. Research lenders: Shopping around to compare lenders can help your child find the best loan for their situation. In addition to interest rates, it's important to consider repayment terms, fees, and eligibility requirements. You can typically prequalify on lenders' websites without affecting your credit.
2. Complete the application: Your child will need to complete an application, and should be prepared to provide documentation like tax returns and pay stubs to verify their income. If you're a cosigner, you'll need to provide documentation as well.
3. Stay on top of payments: If your child is approved for the loan, don't stop making payments on your PLUS loan just yet. Wait until the refinance is finalized, otherwise you might see a ding to your credit if you miss an expected payment.

Alternatives to transferring a parent PLUS loan

Before diving into the transfer process, explore the following alternatives.

Switch to an income-driven repayment plan

If you're looking to lower your payment obligations, applying for the Income-Contingent Repayment (ICR) Plan can help. After consolidating your parent PLUS loan with a Direct Consolidation Loan, you can apply for the ICR Plan. Under this plan, your payment will equal the lesser of 20% of your discretionary income or what you'd pay on a fixed plan over a 12-year term, adjusted to your income.

Parents with a high income might see their monthly payment rise beyond the amount associated with the 10-year Standard Repayment Plan. But if ICR offers a lower payment, this might be a good option for you.

Explore loan forgiveness options

Loan forgiveness is another avenue that's worth pursuing. As a parent PLUS borrower, you can qualify for forgiveness after completing the 25-year repayment term. You may qualify for Public Service Loan Forgiveness if you work full-time for a government agency or qualifying not-for-profit organization and make 120 payments under the ICR Plan after consolidating with a Direct Consolidation Loan.

Work with your child to repay the loan

A final option is to work with the student to repay the loan, even though the loans remain in your name.

“It might be better to have a side agreement where the student agrees to make the payments on the parent PLUS loan, sending the money to the parent who then sends the money to the loan servicer,” says Kantrowitz.

“That way, the parent remains in control and can make sure that the payments are made on time,” he adds.

This option leaves the repayment burden on you as the parent. Although this arrangement puts no legal responsibility on your child's shoulders, they may opt to help you repay the loan this way. If you want to go this route, consider having an open and honest conversation about your financial situation and goals with your child.