A reader wants to transfer a loan to her son, so the debt can qualify Public Service Loan Forgiveness...
Question: I have a parent PLUS loan for my son. It’s in my name, and it’s $90,000. My son graduated and I wanted to put it in his name. I’m told I can’t. He works as an EMT so I wanted to get forgiveness for his loan. Can I do this? – Susan from New York
Andrew Pentis from Student Loan Hero responds…
The way federal student loans are set up, it’s not unusual for a parent to step in when their child has reached their borrowing limit. Many families share the understanding, however, that the student will eventually take over the repayment of a parent PLUS loan previously borrowed on their behalf.
That seems to be your predicament, Susan. After helping your son meet his school’s cost of attendance – to the tune of almost six figures – you’re expecting him to pilot payments or, at the very least, seek help elsewhere.
Let’s address both of these possibilities.
Can you transfer a federal parent PLUS loan to your son?
Unfortunately, Susan, what you’ve been told is correct. The Department of Education won’t allow your son to assume responsibility for your parent PLUS loan repayment, at least in any formal way.
That leaves your family with two options:
1. Arrange an off-the-books arrangement with your new graduate
If your son is financially able – and open to the idea – he could start submitting monthly payments for the parent PLUS loan, even coming up with a debt payoff strategy. The bills would still be mailed to you, and you’d still be legally responsible for repayment – but your son could become the de facto borrower.
For this to work, the two of you would have to agree on the details. One approach might include you helping your son comb through his monthly budget to confirm he has the cash flow to pay back your loan.
Imagining worst-case scenarios, while far from fun, would also be wise. Both of you should know what would occur, for example, if your son suddenly isn’t able to meet the monthly dues on his own. Having contingency plans in place will ensure that money won’t weigh on your mother-son relationship.
Also, be aware that because the parent PLUS loan would stay in your name, your son would need your authorization to take almost any action on the debt. If he wanted to seek a lower monthly payment, for instance, then your income level (not his) would determine the reduced monthly payment amount via an Income-Contingent Repayment (ICR) plan – the government’s only income-driven plan available to parent PLUS borrowers who consolidate within the federal loan system.
2. Refinance the loan with a private lender
If an informal arrangement doesn’t suit you and your son, you could legally transfer ownership of the parent PLUS loan to him through private loan consolidation – also known as student loan refinancing. This involves a bank, credit union, or online company turning the parent PLUS loan into a new private debt that could ideally carry a lower interest rate or reduced monthly payment.
Refinancing a parent PLUS loan into your child’s name might sound like a no-brainer. But know that your son wouldn’t just need to be on board with refinancing, but would also need good-to-great credit and a regular income – or a cosigner with both – in order to qualify.
Typically, those companies that provide parent PLUS refinancing – not all do – require borrowers to have credit scores in the mid-600s. Even higher credit scores, meanwhile, would help you access the lowest advertised rates.
There’s also a potential downside of this approach: Refinancing would permanently strip the parent PLUS loan of its federal status, limiting your family’s potential forgiveness options.
What about loan forgiveness opportunities for parents and EMTs?
Before making arrangements with your son or seeking a private lender to manage your parent PLUS loan repayment, it’s important to understand your loan forgiveness options.
Qualifying for student loan forgiveness can be tricky, as each program has unique eligibility criteria. Also, forgiveness is usually awarded after a period of years, not right away.
As the primary borrower, Susan, your options include the Public Service Loan Forgiveness (PSLF) program. Under PSLF, you could have your remaining balance cleared after working for an eligible public or nonprofit employer and making on-time payments for 10 years. To be clear, your employer (not your son’s) would have to qualify.
This is an especially unfortunate Catch-22: As an EMT, your son could be eligible for PSLF on his own federal loans, if he has any. But the only way for him to take over your parent PLUS loan is through refinancing, which would erase that loan’s eligibility for PSLF.
On the other hand, your son could possibly find a state- or employee-based repayment assistance program for the parent PLUS loan after refinancing it into his name. Though the number of programs is growing, it’s difficult to qualify for many of them, so this shouldn’t be his primary reason for refinancing. He should only make this move if you, the current borrower, won’t benefit from federal loan protections (like income-driven repayment and PSLF) and if he’s financially able to take the reins of repayment.
On the other hand, Susan, if refinancing isn’t feasible and you maintain ownership of the parent loan, you could also explore forgiveness and repayment assistance programs available in your state. High-demand professions in the medical, education and law fields typically have the most opportunities. Contact your state’s higher education authorities to learn about what’s out there.
Discuss your options for student loan debt relief with a qualified professional.
Published by Debt.com, LLC