Can Parent PLUS Loans Be Transferred to the Student?

Parent PLUS loans are a financial tool for families seeking to fund higher education, yet a common question is their transferability to the student. These federal loans are issued directly to the parent, making them solely responsible for repayment. While a direct transfer of a Parent PLUS loan from the parent to the student is not possible through federal programs, an indirect method, through private student loan refinancing, can shift repayment responsibility to the student. This involves the student taking out a new loan to cover the existing balance.

Understanding Parent PLUS Loans

Parent PLUS loans, also known as Direct PLUS Loans, are federal education loans for parents of dependent undergraduate students. They help cover educational expenses not met by other financial aid. Unlike other federal student loans, the parent is the designated borrower and legally obligated for repayment.

Borrowing is limited to the student’s cost of attendance, minus other financial aid received. Parent PLUS loans come with a fixed interest rate, and a loan fee is deducted proportionally from each disbursement.

Refinancing Options for Student Takeover

Although federal regulations prevent a direct transfer, students can assume responsibility for a Parent PLUS loan through private student loan refinancing. This is not a “transfer” of the original federal loan, but rather the student applying for a new private loan in their own name. If approved, funds from this new private loan pay off the existing Parent PLUS loan, effectively replacing it.

To initiate this, the student researches private lenders offering refinancing of Parent PLUS loans into the student’s name. After selecting a lender, the student applies for the new private loan. The application requires financial information and is assessed based on the student’s creditworthiness. Once approved and disbursed, funds are sent directly to the original Parent PLUS loan servicer to satisfy the outstanding balance.

Student Eligibility and Requirements for Refinancing

To qualify for refinancing a Parent PLUS loan, private lenders evaluate several factors for eligibility and interest rates. A strong credit history is a primary requirement; many lenders look for a credit score of 650 to 680 or higher, as it generally leads to more favorable interest rates.

Lenders also assess income stability, requiring a consistent source of income and a manageable debt-to-income (DTI) ratio, ideally 50% or lower. If a student does not meet these requirements, a creditworthy cosigner, such as a parent, may be necessary for approval. Required documentation for the application includes recent pay stubs or proof of employment, government-issued identification, and current billing statements or payoff letters for the Parent PLUS loan.

Implications of Refinancing for the Student

Refinancing a Parent PLUS loan into a student’s name shifts legal responsibility for the debt. The student becomes solely accountable for all future payments on the new private loan. This new loan will have terms set by the private lender, including different interest rates (fixed or variable) and a new repayment period.

A key consequence of refinancing a federal Parent PLUS loan into a private loan is losing federal loan benefits and protections. These federal benefits include income-driven repayment plans, which adjust monthly payments based on income and family size. Additionally, the student loses eligibility for deferment and forbearance options that provide temporary payment relief, and will not qualify for federal loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF). This decision is irreversible, so students should carefully consider the trade-offs before proceeding.