3 Steps to Transfer Parent PLUS Loans to Your Child
If you’re reading this, there’s a good chance that you’re wondering if you could transfer Parent PLUS loans to your child.
Parent PLUS loans threaten 3.5 million American families’ ability to retire. Across the U.S., parents are faced with having to pay back $83.7 billion dollars in federal Parent PLUS loans. That’s an increase of more than $21 billion dollars in the past four years alone.
More than 700,000 households near retirement have student debt. So it’s no surprise that one of the biggest questions we get from parents and financial advisors is:
“Can I transfer Parent PLUS loans to my child?”
If you took out Parent PLUS loans to help fund your child’s undergraduate education, you might be wondering the same. And the short answer is that, yes, it is possible. You would have to refinance the debt into your child’s name. Of course, this assumes they’d be agreeable. But if successful, you could potentially lower the interest rate, saving thousands of dollars and be able to focus on retirement.
Just keep in mind that refinancing isn’t a silver bullet solution for everyone. Your child may not be able to afford the payments. Especially if they’re making payments on their graduate student loans. Refinancing would also change the loan to a private student loan —causing you to lose any federal benefits and repayment plans.
Today, I’m going to share what’s working today for parents to transfer their PLUS loans to their (willing and able) child. Here’s the 3 Steps to Transfer Your Parent PLUS loans to your child:
1. Transfer Parent Plus loans by having your child apply for a refinancing
It’s important to note that (in the eyes of the government) Parent PLUS loans are the parent’s responsibility —not the student’s. It doesn’t matter what was agreed upon in your family. That being said, I would highly advise the use of a little tact and finesse when presenting this idea to your child. If you come across as less than delicate in assuming the responsibility for this debt, they can and most likely will refuse.
Start a casual conversation with your child about both of your financial situations. Try to get a sense as to how willing they’d be to assuming this debt. Are they financial capable to? Try adding some humor about how you don’t want to move in with them. And listen.
Let them know that you’re not going to leave them hanging. Offer assistance in repaying these loans up to your retirement, without actually having them in your name.
If you offer a financial strategy that’s mutually beneficial —as opposed to backing them into a corner —they might just work with you.
When they agreed, have your son or daughter to apply for a student loan refinance. Companies like SoFi, CommonBond, and Laurel Road may approve the refinance. If so, they’ll refinance your Parent PLUS loans out of your name and into your child’s name.
A word of caution. If you have multiple Parent PLUS loans from different children, don’t consolidate them. This will merge all your Parent PLUS loans into a single larger loan and you’ll never be able to transfer them back to your kids.
2. Include your Parent PLUS loans in your request to transfer
Even though your Parent PLUS loans are in your name, your child has to fill out the application with their information. Each lender has their own eligibility criteria. But for the most part, they want to see that the child has the financial means to pay back the loans themselves.
Your child will have to note that the loan is under your name (the parent), on the refinancing application.
3. Get Approved (or Denied)
If approved, the new lender will send your child various offers or options to choose from via email. Your son or daughter may be offered fixed and variable interest rate options. Each will come with various term lengths. Review these options with them to help them make the best choice.
Once approved, the student loan refinancing company will issue your child a new loan. This will be used to pay off your Parent PLUS loans.
It’s important to note that the new loan will have it’s own terms and conditions. It’s important to read and understand these terms. If you had to cosign the loans, review the promissory note for a “Release of Cosigner” clause. If your child makes a number of on time monthly payments, the lender will release you as a cosigner. It’s in your best interest to make sure that happens.
When you satisfy the “Release of Cosigner” terms, inquire with the lender to get yourself off the loan. You’ll probably have to apply for cosigner release.
What to do if your child refuses to transfer Parent PLUS loans into their name
You could have been very diplomatic in your approach. And despite all your efforts, your son or daughter refused to transfer (or even make payments on) these Parent PLUS loans.
Don’t take it personal. Yes, it’s an emotional blow to say the least. But lashing out will just damage your relationship with your son or daughter. You’ll turn yourself into some debt collector.
I’ve seen this happen in my own family. My cousin went off to law school and left my aunt with $100,000 in Parent PLUS loans. He graduated law school about five years ago and still won’t help make payments —let alone refinance the debt into his name.
I remember him asking me to cosign his law school loans. Not doing so ranks up in one of my top financial choices.
Instead, try to understand to see your child’s point of view. They might be under a lot of financial pressure. As a financial planner, I see student loan repayments erode 50 to 65 percent of my clients’ net take home pay each month. Perhaps your child has a similar reality. There’s very little money to enjoy life, which is what kids should be doing in their late-twenties to mid-thirties.
Get a second opinion
If you can’t transfer Parent PLUS loans to your child, you’ll need to incorporate them into your financial plan. You might even want a second opinion on your retirement.
The reality is very few financial advisors understand the complexity of student loans. That includes all the options borrowers have. If your financial advisor is avoiding questions about your student loans, takes too long to reply, or simply doesn’t know, you could be in trouble. Mistakes made around student loans can cost thousands of dollars.
Not having the right strategy around Parent PLUS loans will erode your income potential in retirement. Here are 8 Questions for Hiring Student Loan Help. Weigh all your options incorporate these Parent PLUS loans into an overall financial strategy.
I want to hear from you
Do you have a pressing question. If so you can drop it in the comments below or ask me privately. If it’s good enough, I’ll answer it and mention you on my next Q&A Tuesday on TommyTV.