Under the current rules, parents cannot transfer these federal loans to a child, and they are solely responsible for paying back the loan. But there is a way to get around this if you're thinking about how to transfer the parent PLUS loan to the student.
You can't inherit student loan debt
In general, student loan debt is not inheritable and does not transfer to a spouse, child, or other loved one upon the borrower's death. The only exception is if the loan was cosigned. In that case, the cosigner may find themselves responsible for repaying what's left.
The student is responsible for the repayment. If a parent cosigns the loan -- common for private student loans -- the parent will also be responsible for repayment. Parent loans often have a higher interest rate than federal student loans. They have less flexible payment terms, and they require a credit check.
A parent PLUS loan can't be transferred to the child. In other words, the parent borrower is legally responsible for the loan.
To transfer federal student loans to another person's name, you might need to refinance with a private lender and give up federal benefits. Many student loan companies exist, so with persistence, you might find one that will consider your request.
Most personal loans cannot be transferred to someone else. There are rare exceptions to this rule, such as mortgages and car loans, but even then, it is easier to qualify for a new mortgage or car loan to pay off the existing loan.
Even if we transfer your loans to a new servicer, we (the U.S. Department of Education) still own your loans. The “transfer” to another servicer means that a new servicer will support you as you repay your loans fully.
Parent PLUS Loans typically have higher interest rates than a student's federal student loans. This means that over the life of the loan, you could end up paying significantly more in interest with a Parent PLUS Loan compared to a federal student loan taken out by a student.
A student loan is borrowed by a student, while a parent loan is borrowed by a parent. While parents can cosign a student loan, the student remains the primary borrower.
Many parents struggling to repay student loan debt can qualify for loan forgiveness. A federal parent PLUS loan may be eligible for forgiveness through an income-contingent repayment plan or the Public Service Loan Forgiveness (PSLF) program. There are also options for parents that take out loans from private lenders.
Additional examples of unsecured debt include medical debt and most types of credit card debt. If you die with unsecured debt, repayment becomes the responsibility of your estate. Your legal estate refers to all the assets, property and money left behind by you or another deceased person when they die.
The remaining unpaid balance of loans is forgiven after 25 years. Income-Based Repayment (IBR)—Depending on when you first took out loans (before or on or after July 1, 2014), payments are generally 10% or 15% of the borrower's discretionary income, but never more than the 10-year Standard repayment plan amount.
The debt is not forgiven because the other person died. You must continue making payments on the account to avoid penalties and negative marks on your credit. Authorized users, however, are not liable for the credit card debt.
While parent PLUS loan forgiveness isn't as widely available as forgiveness for student borrowers, a few options do exist. Some options include the Income-Contingent Repayment plan (forgiveness after 25 years of payments) and Public Service Loan Forgiveness (forgiveness after 10 years), as well as other methods.
The Parent PLUS loan interest rate – 7.54% as of July 2022 – is generally higher than the rate for a private student loan and potentially higher than the rate on other possible sources of financing. For example, parents who are homeowners may be able to take a cash-out refinance mortgage at a lower rate.
If you have a parent PLUS loan, you can only get student loan forgiveness through Public Service Loan Forgiveness or the Income-Contingent Repayment plan, and borrowers must meet certain requirements for each option, such as making 120 payments or working for a qualifying employer.
Do parents have to cosign on student loans? If you're borrowing federal student loans from the Department of Education, the answer is usually no. But if you need a private student loan, you'll need a cosigner if you can't meet requirements for income and credit on your own.
They may not have good credit.
When a lender evaluates an application for a student loan with a cosigner, the terms will be based on the finances and credit report of the cosigner. If your parents don't have good credit, they may worry that you'll be saddled with high interest rates and unmanageable terms.
In most cases, the borrower no longer had any outstanding student loan reported on their credit record in February 2023, suggesting the loan may have been paid off, discharged, or aged off the borrower's credit record.
Student loans disappear from credit reports 7.5 years from the date they are paid in full, charged-off, or entered default. Education debt can reappear if you dig out of default with consolidation or loan rehabilitation.
There are a few reasons your account may unexpectedly list a balance of zero: You got a new loan servicer. It's common for loan servicers to change, so your account may be zero with your old servicer if your loan amount was transferred to another servicer.
You don't have to worry about family loans being subject to tax consequences if: You lend a child $10,000 or less, and the child does not use the money for investments, such as stocks or bonds. You lend a child $100,000 or less, and the child's net investment income is not more than $1,000 for the year.
Your lender will have to approve the new borrower: You can't just transfer your original contract to anyone. Most lenders will require the new borrower to complete a credit check and have enough money for a down payment.
Lending money to children is a delicate balance between family and finances and must be considered carefully. There are tax factors to consider, such as gift tax exclusions. If you decide on a family loan, ensure there's a solid repayment plan in place.