Parent PLUS loans are a type of federal student loan. PLUS loans are different from all other types of student loans in that only parents can apply for them. Once you take a Parent PLUS loan, it remains in your name and you’re responsible for the loan payments.

The federal government doesn’t allow PLUS loan holders to transfer the payments to the student. The only way to transfer the responsibility of Parent PLUS loan payments to your student is by refinancing the loan. This can only be done with a private lender. Even then it is only possible if your child meets the refinancing lender’s eligibility criteria.

Here’s what you should know about refinancing a Parent PLUS loan payments to your student.

How Parent PLUS Loan Refinance Works

When you refinance a Parent PLUS loan, you’re essentially trading it for a brand new loan. The lender pays off the old loan and issues a new loan with new terms, conditions and interest rates. The interest rate set on the new loan will be based on the loan holder’s financial credentials.

If you’re refinancing your PLUS loan in the student’s name, the lender will first determine if the student meets their minimum requirements. Lenders’ minimum credit score requirements for refinancing generally range from about 650 to 680. Lenders will also have a minimum income requirement.

If the student qualifies for refinancing, the lender will then assess the student’s financials to set the loan terms. A high credit score, steady income, and low credit utilization will earn the student a more competitive interest rate.

Once the refinancing process is complete, your child takes on the responsibility for the payments. You have nothing more to do with the loan.

The Pros Of Transferring Parent PLUS Payments To The Student

Being released from the original loan is a major benefit of transferring a Parent PLUS loan to the student. It absolves you from the debt obligation and frees you up to focus on your own financial goals.

But you’re not the only one who will benefit from transferring your PLUS loan to the student. The student will also benefit from this strategy.

• If the student is a recent graduate, chances are they would not have had much opportunity to build credit. Making loan payments on time consistently will give them an opportunity to start building their credit score. This will benefit them several different ways along their financial journey.
• If the student’s credit is excellent, they may qualify for a rate that’s lower than what you’re currently paying on the PLUS loan. Even a small rate drop can add up to substantial savings over the life of the loan. This is a compelling enough reason to transfer the loan payments to the student.

The Cons of Transferring Loan Payments to the Student

The only downside to refinancing any type of federal student loan is the loss of federal protection. These include income-driven repayment plans and forgiveness options.

How To Transfer Parent PLUS Loan Payments To The Student

Step 1

Your fist step will be to look for lenders who offer Parent PLUS Loan refinancing in the student’s name. Not all lenders offer this option.

Step 2

Shortlist all relevant lenders and check out their eligibility criteria. You’ll find that lending criteria vary by lender. If the student doesn’t meet the lender’s requirements, eliminate them from the list. Lenders will rarely approve an application or negotiate the terms if their minimum requirements are not met.

Step 3

Use an online refinance calculator to determine your interest rate with the different lenders. You’ll want to refinance with a lender offering the best rate of interest.

Step 4

Read the fine print to make sure your chosen lender doesn’t charge any additional fees such as application, origination or pre-penalty fees. These fees can increase the cost of the loan considerably. Look instead for a lender that doesn’t charge you any fees for refinancing. Most reputable lenders don’t.

Step 5

Once you’ve finalized your lender, it’s time to get all the documentation together. You’ll need to submit your pay stubs and tax returns from the previous 2 to 3 months if you’re employed. If you’re self-employed, profit-and-loss statements and federal tax returns will serve as your proof of income. You’ll also need to submit a statement of assets, statement of debts, personal identification and residential address.

What If Your Child Can’t Qualify For Refinancing?

Transferring Parent PLUS loan payments to the student is totally dependent on the student meeting the lender’s minimum requirements. If the student’s financial history isn’t strong enough to qualify for refinancing, there is another option. They can refinance with a creditworthy cosigner. When refinancing with a cosigner, the lender determines approval based on the cosigner’s creditworthiness. The interest rate is also set based on the cosigner’s credit score.

Does It Make Sense To Transfer Parent PLUS Loan Payments To The Student?

In most cases it is worth it. Parent PLUS loans come with very high interest rates and limited federal protections. The only benefit of hanging on to them is if you think you may want to avail of the repayment plans. There’s no other upside to keeping them.

On the other hand transferring the loan payments to the student gives them the opportunity to start building their own credit history. And if their financials are strong enough, they may even qualify them for a lower interest rate resulting in serious savings. Last but not least, it frees you from paying off the debt so you can focus on your own financial wellness.