Many parents borrow to help their children fund the cost of college but ultimately want to transfer the student loans to their kids. Unfortunately, this isn’t always easy, although it can be doable under the right circumstances.
When can you transfer a parent loan to a child?
If you have Parent PLUS Loans, you cannot transfer these federal loans. The parent remains responsible for repayment for the life of the loan.
However, the child who benefitted from the federal student loan could take a private refinance loan to repay the federal PLUS Loans. This would have the effect of transferring the loans so the child would be responsible for repayment instead of the parent.
Anytime you refinance a federal student loan into a private student loan, it means a loss in many federal benefits, such as any potential federal loan forgiveness and options to pause payments during deferments.
To make this strategy work, the child would need to qualify for a refinance loan, though. This would mean meeting the lender’s income and credit score requirements. Parents would have the option to cosign to help students refinance but would still remain legally responsible for the loan if the child defaulted.
If the parent needs to cosign to enable the child to qualify, it’s a good idea to look for a lender that allows cosigner release after a certain number of on-time payments are made. If the child complies with the payment requirements, the parent will be fully absolved of all responsibility for the loan within the shortest possible timeframe.
Should you transfer a parent loan to a child?
Refinancing PLUS Loans to a private loan in the child’s name also has some downsides so taking this step doesn’t always make sense.
It would mean giving up federal borrower benefits, including more generous forbearance policies, the opportunity to change payment plans as needed, and the chance to qualify for loan forgiveness available for consolidated Parent PLUS Loans when parents are on an income-driven plan or work in public service.
Even if you don’t mind losing these benefits and the child can qualify for a private refinance loan, not all lenders allow children to refinance parent loans into their own name. You’ll need to shop around carefully to find one that permits this type of refinancing arrangement.
Refinance Lenders That Allow You To Transfer a Loan to a Child
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