A lot of parents take out loans to help pay for their child’s tuition. And once your child has their feet under them, it may make sense for you to transfer that loan to them.
That’s easier said than done because the federal government won’t let you transfer that loan to your child’s name. But, lucky for you, there’s a workaround. Here's the scoop.
You may not be able to transfer the loan in the technical sense, but you can refinance the loan with a private lender that will let you transfer the debt to your child’s name (with your child's consent and cooperation, obviously).
There are pros and cons to this approach. Let's talk about how this works and then discuss the lenders that can help you.
Benefits of refinancing with a private lender
The first benefit to this approach is that there’s no other way to transfer your Parent PLUS loan to your child. If that’s your goal, the federal government can’t help you—but private lenders can.
The second benefit is that you may be able to land a better interest rate for your child this way. It’s true that the federal government offers really low interest rates. But, in some cases, private lenders can beat them. This is especially true for Parent PLUS loans.
The current interest rate on these loans is 7%, and some private lenders offer rates as low as 2.5% for refinanced student loans. That’s even lower than what you can get on a Perkins loan, which is currently at 5% interest.
Drawbacks of 'transferring' the loan
When you refinance with a private lender, you—or your child—lose some federal benefits.
Refinancing replaces the Parent PLUS loan with a new private loan. The old loan goes away—and so do all the federal perks, including deferment, forbearance, and forgiveness.
That said, some private lenders offer flexibility if you (or your child) experience a change in finances. It's worthwhile to look into that when you’re researching which lender to use to transfer your Parent PLUS loan to your child.
Not sure which private lender to look to? No problem. We’ve found three that specifically work with parents to transfer their loans.
Transferring your Parent PLUS loan with SoFi
SoFi offers programs specifically for parents who want to transfer their Parent PLUS loans. Their interest rates are strongly competitive (and remember, your Parent PLUS loan probably carries a 7% interest rate) - (as of April 2019):
- Variable rates: 2.560% to 7.295% APR
- Fixed rates: 3.899% to 8.024% APR
In order to qualify, the child must have earned at least an Associate’s degree from a Title IV school. They must also meet some other requirements for income, credit score, employment, and other financial conditions.
There are also a few other factors to think about. SoFi doesn’t lend in every state, so the child must live in a state where they’re authorized. In most cases, there must be at least $5,000 in student loans to refinance; that number is higher in some states due to local laws.
SoFi offers five, seven, 10, and 15-year terms on their loans. And there are some additional perks to refinancing with SoFi. These include no origination fee, a 0.25% discount on interest rates for enrolling in autopay, and a further 0.125% discount on a second SoFi loan for being a member.
What makes SoFi really unique is its career support for borrowers. Its program includes networking events, an entrepreneurship program, and career coaching. This makes the company a great fit for ambitious and entrepreneurial people.
Transferring your Parent PLUS loan with Laurel Road
Laurel Road is also a lender that will let you transfer your Parent PLUS loan to your child. The requirements your child must meet include:
- Being a U.S. citizen or permanent resident.
- Holding a Bachelor’s degree or higher from a Title IV school.
- Meeting Laurel Road’s requirements for credit score, monthly income, and existing debt.
Laurel Road’s interest rates are also very competitive (as of April 2019):
- Fixed-rate loans: 3.50%-7.02% APR
- Variable-rate loans: 2.50%-6.65% APR
They also offer a wide range of terms, including five, seven, ten, 15, and 20 years.
Like SoFi, Laurel Road doesn’t charge an origination fee. They don’t have prepayment or disbursement fees, and they offer an AutoPay discount of 0.25%.
They also offer forgiveness in the event of death or permanent disability, as well as forbearance if you experience economic hardship, take an unpaid parental leave of absence, or lose your job. This is an above-and-beyond level of flexibility in a private lender, and definitely makes Laurel Road stand out.
Transferring your Parent PLUS loans with CommonBond
Finally, CommonBond will also let parents transfer their Parent PLUS loans to children.
CommonBond offers both variable- and fixed-rate loans, under the following rates (as of April 2019):
- Fixed-rate loans: 3.20%-6.25% APR
- Variable-rate loans: 2.48%-6.25% APR
- Hybrid-rate loans: 4.29%-6.34% APR
A hybrid-rate loan is a concept unique to CommonBond. This loan has a fixed rate for five years and then goes to a variable rate for five years. This allows borrowers to get the benefits of both loan types under one umbrella.
Their terms span five, seven, 10, 15, or 20 years, depending on the loan type. To qualify, your child must:
- Be a U.S. citizen or permanent resident.
- Have graduated from a qualifying Title IV school.
- Be able to meet the requirements for credit history and income.
CommonBond will also give your child a 0.25% discount off your rate if they sign up for autopay.
Contrary to what the federal government will allow, it’s definitely possible to transfer your Parent PLUS loan to your child. Lenders such as SoFi, CommonBond, and Laurel Road offer specialized services through that area and can walk you through it.
Any one of these is a good choice. But it's up to you to decide which is the best fit for you and your child.
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