Can a Parent PLUS loan be transferred to a student? 

Some families will opt for a Parent PLUS loan since there are more options for repayment. (iStock)

A Parent PLUS loan can fill in the gap for funding when college students have maxed out direct subsidized and subsidized loans.

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These loans, provided by the Department of Education, are federal student loans and require that borrowers have adequate credit scores.

Parent PLUS loans do offer more options for repayment plans, but the interest rates tend to be higher and could take longer to pay off. Refinancing and forbearance are two options for changing the repayment terms.

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In addition to the higher interest rates, Parent PLUS loans require borrowers to also pay an origination fee. The current Parent PLUS loan interest rate is 7.08 percent and there's a 4.236 percent origination fee. Although these interest rates are fixed, they are higher than private student loans that often do not have an origination fee.

Can parent PLUS loans be transferred to the student?

Parent PLUS loans can never be transferred to the student. Taking out this loan could instead impact a parent’s credit score if payments are not paid on time.

Another issue is that parents must consolidate their loans with the Department of Education first before they can qualify for income-based repayment or public service loan forgiveness (PSLF). By extending the repayment period, parents face paying more for the loan since interest continues to accrue. Use a student loan calculator to determine how much the interest costs.

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What is the fastest way to pay off a parent PLUS loan?

The quickest way to pay down a Parent PLUS loan is to obtain a lower interest rate by refinancing it privately, said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization.

“Increasing the amount and frequency of your payments will have a greater impact thanks to the lower interest rate resulting from refinancing the loan,” he said.

Are parent PLUS loans a bad idea?

Parent PLUS loans give parents the ability to borrow money at a fixed interest rate, but the higher interest rates, plus the origination fee means paying off the loan could take a longer time.

A parent’s income and debt-to-income ratio do not factor when applying for a Parent PLUS loan. There is also not a limit on the amount that can be borrowed, but this could set some parents back when they should be funding their retirement.

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Since it is a federal student loan, borrowers are eligible for affordable repayment plans.

Refinancing a Parent PLUS loan could be a good option when you are able to obtain a lower interest rate and payment.

“It is also worth exploring refinancing options before transferring the loan to a student,” McClary said. “A primary consideration should be that you can only refinance through a private lender, which means that your loan is no longer eligible for affordable repayment plans and other protections that are specific to federal student loans.”