Federal student loans are a great student loan option as they come with a number of benefits that come in handy during the repayment journey. As a parent, you might have taken out a parent PLUS loan to help your child with their education. But as you’re getting closer to retirement age and managing multiple financial priorities, you might start to wonder how you can lessen some of the burden associated with repayment. In order to lessen this burden, you sought out to refinance the parent PLUS loan into the child’s name. Upon doing this, if there are any missed payments or delayed payments the parent’s credit score is not hampered. Refinancing your student loans is a great way to manage debt but it is advised to have in-depth knowledge of what refinancing is and what it has to offer.
Parent PLUS Loans carry a 7.6% interest rate as of July 2018, which is on the higher end for federal student loans and can make it difficult to get ahead on principal payments.
Table of Content
- What is Parent Plus Loan
- Can the parent loan be transferred to the child
- How to refinance the loan into your child name
What is Parent Plus Loan?
The Parent Plus Loan is a loan that is issued for undergraduate or grad students to pay for their schools or colleges. The Parent PLUS Loan offers a fixed interest rate and flexible loan limits.
Before parents borrow from the Parent PLUS Loan program, it is best if their child exhausts eligibility for Direct Loans first, since these student loans have lower interest rates and fees. You will have to fill the FAFSA form in order to check.
Some parents borrow Parent PLUS Loans to make sure their children don’t take on too much student loan debt. But remember, nothing stops parents from helping their children with their student loan payments. Borrowing Direct Loans before Parent PLUS Loans will save the family money.
How to apply for Parent Plus Loan
To obtain parent plus loan some of the guidelines are to be followed:
The same parent who will complete and sign the Master Promissory Note (MPN) should request the loan.
Parents, not the student, must request the loan.
The same FSA ID that was used to sign the FAFSA must be used to request the loan.
Credit Requirement for Parent plus Loans
To get a parent plus loan you have to meet the credit requirements set up by the lenders
Current delinquency of 90 or more days on more than $2,085 in total debt.
More than $2,085 in total debt in collections or charged off in the past two years.
Default, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of federal student loan debt in the past five years.
Other requirements for Parent plus loans
There are some other than credit requirements there are other requirements which have to be filled to obtain the Parent plus Loan which are as follows:
Students must be enrolled in school on at least a half-time basis.
Male students must have registered with the Selective Service.
Students and parents must be U.S. citizens or nationals, permanent residents, or eligible noncitizens.
Students and parents can’t be in default on a federal student loan.
Parent PLUS Loan proceeds must be used for educational purposes.
Parent Plus loans Interest and fees
The interest on a Parent PLUS Loan starts to add up from the date the loan is first disbursed. Generally, federal student loans are sent to schools in two or more disbursements, except at colleges and universities that have a low default rate. If the borrower does not pay the interest as it accrues, it will be capitalized added to the loan balance, increasing the size of the loan.
The current origination fee on Parent PLUS Loans is 4.236%. Fees are deducted from each loan disbursement. Borrowers can ask the college financial aid office to increase the amount borrowed to cover the fees, up to the annual loan limit.
Parents may be able to deduct up to $2,500 per year in interest paid on the Parent PLUS Loan through the student loan interest deduction. This deduction is implemented as an above-the-line exclusion from income, and, thus, may be claimed even if the parent doesn’t itemize on his or her federal income tax return.
Parents should compare the costs and benefits of PLUS Loans and private student loans. Parents with excellent credit may qualify for private student loan interest rates that are lower than the current PLUS Loan rate.
Worried about your college tuition? Find the best student loans suited for you
Can the parent loan be transferred to the child?
There are ways by which the lender can transfer the parent's loan into the child’s name and refinance the loan in the same order. Refinancing federal loans is a very easy way to save some money.
There are two ways to refinance parent PLUS loans
You, the parent borrower can refinance the loan in your name.
Your child can refinance the loan in his or her name and take on the repayment responsibility. This is the only way to transfer parent loans to the student.
Refinancing isn’t right for you if you have bad credit, struggle to make monthly loan payments or want to access federal benefits including income-driven repayment plans and student loan forgiveness programs.
Points to consider before refinancing into the child's name
Estimate your savings: You should refinance if you have a credit score at least in the high 600s, are comfortable giving up federal loan benefits and can qualify for a lower rate.
Compare refinance lenders: Shopping around is the best way to ensure you get the lowest interest rate you qualify for. The table above lists lenders that offer parent PLUS loan refinancing. Many lenders allow you to pre-qualify without harming your credit. They’ll conduct a soft credit pull to estimate your rate.
Application and approval: Lenders will do a hard credit check before finalizing your new rate. If you’re approved, the lender will pay off your existing loans and you’ll make payments to the new lender. The loan will still be your responsibility to repay, not your child’s.
Looking to refinance your student loans? Find the best companies that refinance your student loans.
How to refinance the loan into your child name
The government doesn’t give parents the option to shift PLUS loans into their child’s name. Even if your child makes payments on your PLUS loan, you’re still ultimately responsible for the debt. However, a growing number of private lenders allow children to refinance their parents’ loans, effectively transferring responsibility for the loan.
The process and requirements for your child to refinance your PLUS loans in their name are the same as if they were refinancing their own student loans with a private lender. To qualify, they’ll need good credit, a strong history of making loan payments and enough income to afford payments or a co-signer who meets those qualifications.
We've noted which lenders allow children to refinance PLUS loans on behalf of their parents. Lenders include Elfi, CommonBond, Laurel Road and SoFi.
Additional Parent Plus Repayment Option
Parent borrowers can become eligible for an additional repayment plan—the Income-Contingent Repayment Plan—by consolidating their parent PLUS loans into a Direct Consolidation Loan
Federal student loan consolidation won’t lower your interest rate, but it’s a hoop parent PLUS loan borrowers must jump through to make their loans eligible for certain federal loan programs. Apply for federal consolidation on the Federal Student Aid website.
There are two main reasons to consolidate your parent PLUS loans through the federal government:
If you want to lower your monthly payments by switching to an Income-Contingent Repayment plan
If you want to pursue Public Service Loan Forgiveness
Income-Contingent Repayment is the only income-driven repayment plan that parent PLUS loan borrowers can qualify for. Under the plan, your monthly payments will be capped at 20% of your discretionary income or the amount of your fixed monthly payments on a 12-year loan term, whichever is lower. Your loan term will be extended to 25 years.
Public Service Loan Forgiveness can cancel some of your student loan debt if you make 120 on-time payments while working for the government, nonprofit or another nonprofit that provides a qualifying public service. To get the most money forgiven, parent PLUS loan borrowers need to make all 120 payments on an income-contingent repayment plan.
The refinancing the loan in the name of your child ‘s name is a very good thing because it helps you to get off the hook with the loan interest amount and gets you a more effective loan interest.
The parent just refinances the whole loan by consolidating the direct federal parent plus loan which gets them a consolidated loan amount with a new interest amount and the repayment becomes monthly.