Parent PLUS loans are an easy way to get money to pay for college, but many parents find the loans overwhelming. In many families, the child who now has a job and a degree is best equipped to handle the debt. In this circumstance, transferring the Parent PLUS loan debt from the parent to the child might seem logical.
However, before going any further, it is crucial to point out that just because you can transfer the debt, it does not mean that you should transfer the debt.
In this article, I’ll first explain how the process works and the steps to get it done. Then I’ll explain why it is a potentially risky move.
The Process to Transfer Parent PLUS Loan Debt to Children
When a Parent PLUS loan is issued, the debt belongs only to the parent. The child for whom the loan was used has no legal obligation to repay the loan.
Additionally, the federal government provides no avenue to transfer the debt from the parent to the child. The parent owes the money until it gets paid in full.
This is where our workaround enters the picture. Some student loan refinance lenders will allow the child to refinance the debt.
When you refinance a loan, the refinance lender will create a new loan with new loan terms. The money from that loan is used to pay off an older loan. In this case, the child gets a new refinance loan, and the money pays off the Parent PLUS loan.
After the refinance, the parent’s loan and debt obligations are eliminated, and it becomes the responsibility of the child to repay the loan.
Lenders that Allow Children to Refinance Parent PLUS Loans
The following lenders will help families transfer Parent PLUS debt from the parent to the child:
|Lender||Interst Rates||Loan Length|
|4.96%* – 10.24%||$5,000 – No Max|
+ Up to $500 Bonus
|Splash Financial Review: Splash has competitive rates, but they start slightly higher than the top lenders. Splash also offers unique 8 and 12 year repayment terms.|
|5.23% – 8.99%||$10,000 – No Max|
+ $150 Bonus
|ELFI Review: ELFI routinely offers excellent interest rates. Even though ELFI is new, it is the product of a regional bank that has been in business for decades.|
|5.24% – 9.84%||$5,000 – No Max|
+ $150 Bonus
|SoFi Review: SoFi consistently offers the best actual interest rates to applicants. Combine that with SoFi's unique job placement program for borrowers and you have a winner.|
Many other lenders, such as Earnest, will refinance Parent PLUS loans, but they will not allow the parent to transfer the debt to the child.
Parent PLUS Refinance Limitations
It’s worth pointing out that the refinance lenders are private companies out to make a profit. Their business model depends on finding borrowers likely to repay the loan.
Additionally, not all refinance lenders will allow children to repay Parent PLUS loans.
Combining these two factors means this option will not work for all families. Getting approved for a new loan will be challenging if your child struggles financially or has a troubled credit history.
Additionally, refinancing federal debt into a private loan comes with significant concerns.
Transferring Parent PLUS Loans to Your Child is Risky
Compared to other federal student loans, Parent PLUS loans are not great. They have limited repayment options, and qualifying for forgiveness has an extra layer of difficulty.
However, they are still federal loans. As federal loans, borrowers can access federal perks like income-driven repayment and loan forgiveness.
Private refinance loans don’t offer these protections.
If your child refinances and then loses their job or faces a financial emergency, the private lenders will be less accommodating. Some may offer a temporary deferment or hardship forbearance, but the debt eventually must get paid in full.
Sherpa Tip: Parent PLUS loans are a headache at times, but they work nicely for borrowers who are living on social security.
Even at a higher interest rate, keeping a Parent PLUS loan with the parent can be the most affordable path to debt elimination.
Other Options for Assistance from a Child
Rather than refinancing the Parent PLUS loan, a child can assist with repayment in many other ways.
For starters, the child can help their parent navigate the federal student loan consolidation process so that the parent can qualify for the Income-Contingent Repayment Plan. They can also help their parent with the yearly income documentation required for IDR repayment.
Additionally, the child can help with payments even if the debt isn’t in their name.
These fixes won’t help the parent’s debt-to-income ratio, but they can still make living with a Parent PLUS loan more tolerable.
When Refinancing a Parent PLUS Loan Makes Sense
I usually tell borrowers considering a refinance of their federal loans only to do it if they are reasonably certain they won’t need any of the federal perks, protections, and benefits.
I’d take that advice a step further when it comes to transferring Parent PLUS loans to children. If the parent may qualify for forgiveness or if the child might struggle with the private refinance loan, the transfer becomes quite dangerous.
However, if repayment in full is a certainty and the only question is how much gets spent on interest along the way, refinancing can make sense. Parent PLUS loans have the highest interest rates of all federal loans. Thus, there is potential for a dramatic reduction in interest spending.
Transferring the debt is also an excellent way for a grateful child to remove a burden off their parent’s plate. Additionally, if mom or dad wants to qualify for a mortgage, transferring the debt can help.
If refinancing to transfer a Parent PLUS loan to a child is the right move for your family, you’ll want to focus on the short list of refinance lenders that offer this service.