Can a Parent PLUS Loan Be Transferred to a Child?

Parent PLUS Loans help parents finance their child’s higher education. These federal loans are disbursed directly to the parent, covering educational costs up to the attendance cost, less any other financial aid the student receives. The application process involves the parent completing the Free Application for Federal Student Aid (FAFSA) and applying for the PLUS loan. A credit check is performed on the parent, and if approved, the parent signs a Master Promissory Note outlining their agreement to repay the loan. Repayment begins 60 days after the final disbursement for the academic year, though deferment options exist.

Parent PLUS Loan Borrower Identity

The parent who obtains a Parent PLUS Loan is the sole borrower and carries the legal responsibility for its repayment. The loan is taken out exclusively in the parent’s name, not the student’s. It appears on the parent’s credit report, and repayment activity directly impacts their credit history. Even if an informal agreement exists for the student to make payments, legal liability remains entirely with the parent who signed the promissory note. The student is not legally required to repay the Parent PLUS Loan.

Federal Loan Transfer Restrictions

Parent PLUS Loans, as federal student loans, cannot be directly transferred from the parent to the child or any other individual within the federal student loan system. Federal loan programs do not offer a mechanism for a change in the primary borrower. When a federal loan is issued, it is based on the original borrower’s financial situation, and its terms are tied to that individual. Shifting this responsibility would require a new agreement, which is not permitted under current federal regulations.

Private Refinancing for Student Assumption of Debt

A common pathway for a child to assume responsibility for a Parent PLUS Loan involves private loan refinancing. This process entails the student taking out a new loan from a private lender in their own name, with the funds then used to pay off the parent’s original Parent PLUS Loan. Refinancing federal loans into a private loan means forfeiting federal benefits like income-driven repayment plans and loan forgiveness programs.

For a student to qualify for private refinancing, lenders assess several factors. A strong credit score is required, often in the mid-600s, with scores above 700 securing more competitive interest rates. Lenders also look for stable income, with a minimum income around $30,000 per year, and a favorable debt-to-income (DTI) ratio of 50% or lower.

A history of consistent, on-time loan payments demonstrates financial reliability. If a student does not meet these criteria independently, a creditworthy co-signer, such as a parent, may be necessary to secure approval or a lower interest rate. Some private lenders may also require proof of a completed college degree or U.S. citizenship or permanent residency.

The procedural steps for a student to refinance begin with researching various private lenders and obtaining rate estimates, available through a “soft” credit check that does not impact their credit score. After selecting a lender and loan terms, the student completes a full application, which involves a “hard” credit inquiry. Required documentation includes current student loan statements or payoff verification, proof of employment (such as W-2 forms or recent pay stubs), tax returns, proof of residency, and government-issued identification.

Some lenders might also request academic transcripts or a diploma. Once approved, the new private lender directly pays off the original Parent PLUS Loan. The student should continue making payments on the Parent PLUS Loan until receiving confirmation that it has been fully paid off.

Managing Parent PLUS Loan Repayment

If a Parent PLUS Loan remains in the parent’s name, several federal repayment strategies are available to manage the debt. The standard repayment plan involves fixed monthly payments over a 10-year period. A graduated repayment plan offers lower initial payments that gradually increase over a 10-year term. For those needing a longer repayment period, an extended repayment plan allows for fixed or graduated payments over up to 25 years.

Parent PLUS Loan borrowers can also access the Income-Contingent Repayment (ICR) plan, which is the only income-driven repayment option for these loans. To become eligible for ICR, the Parent PLUS Loan must first be consolidated into a Direct Consolidation Loan. Under ICR, monthly payments are capped at either 20% of the borrower’s discretionary income or the amount that would be paid on a fixed 12-year repayment plan, whichever is less. Any remaining loan balance after 25 years of payments under ICR may be forgiven, though the forgiven amount could be considered taxable income.

Temporary relief options like deferment and forbearance can also be utilized. Deferment allows for the postponement of payments, such as while the student is enrolled at least half-time in an eligible school, or for an additional six months after they graduate or drop below half-time enrollment. Deferment can also be requested due to economic hardship or unemployment.

Forbearance offers a temporary suspension of payments for a specified period, often due to financial difficulties. Interest continues to accrue on Parent PLUS Loans during periods of both deferment and forbearance, and this accrued interest may be capitalized, increasing the principal loan balance. An application is required to initiate these temporary payment pauses.