Ibrahim Gardner
There are several ways to add another person to pay for a student loan. Firstly, it is possible to add an authorized payer to your account, allowing them to make direct payments. Third-party services also enable payments to another person's student loan. Alternatively, refinancing through a private lender is the most direct method of transferring a student loan to another person. This involves the new borrower applying for a new loan to pay off the existing one. However, federal loans must be refinanced into private loans, resulting in the loss of federal benefits. Additionally, federal student loan forgiveness programs exist for certain occupations, such as Peace Corps volunteers and public service employees. Finally, crowdfunding platforms like GoFundMe and LoanGifting have become popular avenues for funding student loan repayment.
| Characteristics | Values |
|---|---|
| Transferring student loans to another person | Possible, but not via the U.S. Department of Education |
| Transferring federal student loans | Not possible unless refinanced through a private lender |
| Private lenders | SoFi, ELFI |
| Eligibility criteria | Good credit history, minimum income, bachelor's degree, etc. |
| Gift tax exclusion for 2022 | $16,000 for individuals, $32,000 for married couples |
| Gift tax exclusion for 2021 | $15,000 |
| Third-party services | GoFundMe, LoanGifting, Indiegogo, loangifting.com, tuition.io |
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What You'll Learn
Understanding the transfer process
Transferring student loans to another person is possible, but it is not a straightforward process. It is important to understand the various options and their implications before proceeding.
Firstly, federal student loans cannot be transferred to another person. If you wish to transfer a federal loan, it must be refinanced through a private lender, which results in the loss of federal benefits such as income-driven repayment plans and loan forgiveness programs.
If you are transferring a loan to another person, they will become legally responsible for the loan amount. Therefore, it is important to ensure that the transfer can be done and discuss any changes with the person receiving the loan. Both parties will need to provide personal and financial information, and the new borrower will need to meet the lender's eligibility requirements, including income and credit score standards.
To transfer a loan, the new borrower will need to apply for a new loan in their name and use it to pay off the existing one. This is known as refinancing. It is a good idea to consult a financial professional for guidance and to check you are getting the best rates.
There are other ways to receive help with student loan payments without transferring the loan. For example, some lenders offer cosigner release, which relieves the cosigner of future responsibility after a set period of on-time payments. It is also possible to add an authorized payer to the account, who can make direct payments. Additionally, third-party services can facilitate payments toward another person's student loans.
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Eligibility criteria
The eligibility criteria for transferring a student loan to another person vary depending on the lender and the type of loan. Here are the detailed criteria for different scenarios:
Transferring to a Child's Name
The most common scenario is transferring a Parent PLUS Loan to the student's name. Private lenders like SoFi and ELFI allow this option through refinancing. The eligibility criteria for the borrower assuming the loan typically include:
- Meeting the lender's credit and income requirements.
- Having earned at least a bachelor's degree.
- Possessing a minimum credit score, which can vary by lender (e.g., ELFI requires a minimum of 680).
Some lenders may also require the student to have graduated and found stable employment.
Transferring between Spouses
While less common, transferring student loans between spouses is possible. The eligibility criteria for the spouse assuming the loan typically revolve around credit and income requirements. The spouse with stronger credit or a higher income might refinance the loan in their name to secure a lower interest rate or better manage household debt.
Public Service Loan Forgiveness (PSLF)
The PSLF program forgives the remaining balance on Direct Federal Loans for those employed full-time by specific government or non-profit organizations. The eligibility criteria include:
- Being employed full-time by a U.S. federal, state, county, local, or tribal government entity.
- Working for a 501(c)(3) tax-exempt charitable organization or certain not-for-profit organizations.
AmeriCorps and Peace Corps Programs
Volunteers in AmeriCorps and Peace Corps programs may be eligible for student loan forgiveness or cancellation. The eligibility criteria include:
- Completing a specified term of service (usually one year).
- Enrolling in an income-driven repayment plan during the service term.
- Holding eligible loan types, such as direct federal, state, or Federal Perkins Loans.
Refinancing with a Cosigner
If a parent or spouse cosigned the original loan, the primary borrower may apply for a cosigner release after a set period of on-time payments. While not all lenders offer this option, those that do typically require a consistent payment history of 12 to 24 months. The new borrower must meet the lender's eligibility criteria, which may include credit and income standards.
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Pros and cons
Transferring student loans to another person is possible in certain cases, but it is not a simple process. It is important to weigh the pros and cons of refinancing and to consult a financial professional for guidance. Here are some potential advantages and disadvantages to consider:
Pros
- Transfer of legal and financial responsibility: Moving the loans into someone else's name allows the original borrower to focus on their own financial goals, such as retirement or entrepreneurship.
- Opportunity to build credit: Making regular, on-time payments will positively impact the credit report of the new borrower. This can be beneficial for a child or spouse who needs to repair or build their credit.
- Improved interest rates: A spouse with a higher credit score might be able to secure a better interest rate through refinancing, which can help manage household debt.
- Milestone gift: Transferring student loans to a child or spouse as a gift upon their graduation or marriage can be beneficial. Paying off the loan directly might result in a gift tax, whereas transferring the loan into their name and allowing them to pay it off can avoid this issue.
Cons
- Loss of federal benefits: Refinancing federal loans into private loans results in the loss of federal protections and benefits, such as income-driven repayment plans, loan forgiveness programs, consolidation, and access to future relief programs.
- Strict eligibility requirements: Private lenders typically have strict credit score and income requirements, making it challenging for recent graduates to qualify.
- Credit score impact: If the new borrower makes late payments or defaults, the cosigner's credit score may also be negatively affected.
- Limited bankruptcy options: Refinancing student loans with a private lender may result in limited bankruptcy options in the future.
- Emotional decision-making: Transferring student loans can be an emotional decision, and it is important to carefully consider the financial implications and seek professional guidance to ensure a well-thought-out plan.
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Gift tax
It is possible to add another person to help pay off a student loan. However, it is important to note that federal student loans cannot be transferred to another person unless they are refinanced through a private lender, which results in the loss of federal benefits. Refinancing is the most direct method for transferring a student loan to another person. This involves the new borrower applying for a new loan in their name and using it to pay off the existing one.
When it comes to gift tax, the donor is typically responsible for paying it, not the recipient. Under U.S. tax regulations, taxes on a gift are paid by the giver, not the receiver. There is an annual gift tax exclusion, which was $14,000 in 2016, $15,000 in 2021, and $16,000 in 2022. This means that gifts below these amounts are not taxable. For married couples, each spouse can give up to the annual gift tax exclusion amount to the same person without triggering taxes. There is also a lifetime limit to the gift tax exclusion, which was $5.45 million in 2021 and $12.06 million in 2022. Gifts above these lifetime exclusion amounts will be taxed.
If you co-sign a student loan and make the payments, it won't count as a gift and won't need to be reported as such. Tuition payments also qualify for a gift tax exclusion, regardless of the amount. However, this rule does not apply to non-tuition expenses like books.
There are a few options for making payments towards someone else's student loan. One option is to provide cash to the recipient, who can then make the payment themselves. Alternatively, you can be set up as an authorized payer or use a third-party website to make ongoing payments or pay a few times a year. To set up a third party to make payments, the borrower will need to grant access through their student loan servicer's website. Once authorized, the third party will need to provide their own and the client's identity information, as well as the routing and account number of a checking or savings account to pull the payment from.
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Third-party services
There are several third-party services that can be used to make student loan payments. One option is to use a website service like loangifting.com, tuition.io, or other apps that will make the payment directly to the loan servicing company. Additionally, crowdfunding has gained traction as a way to help people pay off student loans. GoFundMe, for example, offers several education-based crowdfunding categories, including student loan repayment. LoanGifting is another student loan management resource that offers crowdfunding, and the money raised goes directly into paying off the student loan.
Another option is to make a one-time online payment together with a friend or family member. This can be done by sitting down with them and having them walk you through making a payment on your behalf.
If you are looking to have a third party added to your student loan account, this is also possible. They can be added as an authorized payer and can make direct payments on the student loan debt. To do this, contact the loan servicer to find out how this process works.
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Frequently asked questions
You can add another person to pay for your student loan by having them set up an electronic funds transfer from their bank. Alternatively, they can send a check with your first and last name and loan number.
Yes, you can transfer your student loan to another person by refinancing it under a private lender. This will result in the loss of federal benefits.
Under U.S. tax regulations, the giver is responsible for paying taxes on gifts. For 2022, the gift tax exclusion is $16,000 for individuals and $32,000 for married couples.
Yes, there are loan forgiveness programs such as Public Service Loan Forgiveness (PSLF) that forgive the remaining balance on Direct Federal Loans if you are employed full-time by a government or non-profit organization.
Yes, you can explore options such as crowdfunding on sites like GoFundMe and LoanGifting, or look into loan repayment assistance programs offered by employers.
