Wouldn’t it be great just to offload your student loans onto someone else? The Department of Education won’t let you transfer federal student loans to another person, but that doesn’t mean it’s impossible.
The loophole involves refinancing your loans with a private lender under another person’s name. This often reduces the loan’s interest rate, too. Here’s a look at how it works in many different situations
Transferring a Parent PLUS loan to a student
Can a parent PLUS loan be transferred to a student? Absolutely.
Many parents take out loans to help put their children through school. But as a parent, you may find yourself dealing with additional financial burdens—such as a mortgage, retirement savings, or medical bills—that make the student loan difficult to deal with.
In those situations, if your child is financially settled, it might make sense to transfer the balance to them.
Some lenders, such as SoFi, Laurel Road, and Lendkey, specialize in programs that help parents shift their Parent PLUS loans to children. While each lender’s process is different, the lender will look at the child’s credit score and financial standing in determining a new interest rate.
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Transferring student loans to a parent
If your parent wants to give you a monetary gift—as a wedding present, for example—it might make more sense to take on your student loan than to just write you a big check.
That’s because if your parent gives you money directly, they might have to pay a gift tax—depending on how much they give and other circumstances. That’s also true if they make a large one-time or many multiple payments toward your loan while they’re still under your name.
If they refinance your loan under their own name, however, it may change the tax situation. Your parent will have to take charge in the application process—and apply under their own name to refinance your loans. If the lender approves, they’ll pay off your existing student loans and issue a new loan in your parent’s name.
Transferring student loans to your spouse
When your finances are intertwined with your spouse’s and you’re making payments toward both of your student loans as a team, it may not always be necessary to transfer all the student loans to one of you. But in some circumstances, it makes sense.
One major drawback is that once you put your student loans in your spouse’s name, they’re 100% responsible for that debt—even if you divorce. For some couples, that’s a tough risk to take—even if the relationship is currently great.
There are, however, certain situations when transferring your student loans to a spouse’s name makes sense. These include:
When one spouse has a significantly better credit score
Even when you’re married, you and your spouse have separate credit scores. Transferring a student loan to the spouse with the better credit score may land you a lower interest rate.
When you want to repair a spouse’s credit
A series of steady payments on a loan can help repair bad credit. If one spouse needs to repair their credit score, it might make sense to transfer a student loan to their name—and let them benefit from the credit boost when you (or they, or both of you) make regular, on-time payments.
When one of you needs another loan
If you’re looking to take out another type of loan—such as a small business loan—having less pre-existing debt will make you a better lending prospect.
Every bank’s criteria is different, but in cases like this, it might make sense to complete the student loan transfer in your spouse’s name. As with other types of transfers, your spouse will have to take the lead in applying to refinance the loan in their name.
How to transfer student loans to another lender
If you’re switching a federal loan to a private lender, bear in mind that the loan will lose federal perks such as Income-Driven Repayment and Public Service Loan Forgiveness. However, it may gain other perks such as a lower interest rate.
To start this process, take a look at private lenders. Investigate which ones have the lowest interest rates, best reputation and reviews, customer service, and perks. Once you narrow down your list, fill out some applications and see what kind of interest rate the lender will offer.
If you’re considering transferring your student loans to another person, it’s best to start by having an honest conversation with that person. They’ll be the one to fill out the application, as it’s their credit score that the lender will have to evaluate.
However, this may still be a joint project between you and the other person. That’s because the lender may ask questions about both the new borrower’s financial situation and your existing student loans, so it may be easier to fill out the application together.
Curious about how much your student loan interest rate could go down when you transfer the loan to another person? Run the numbers at Refi Ready.