Abstract:
A system, computer program product, and method that enable a parent&#39;s Federal PLUS Loan to be refinanced by the student into a new private loan product. The system includes a computer network, server, storage device and Web Site. The system, computer program product and method all allow for online application by student for the new loan, storing of the application information, electronic signature of the promissory note, electronic provision of income documentation and proof of identity, credit qualification checks completed on student by computer, creation of a new loan in the student&#39;s name, payment-in-full of the parent&#39;s PLUS loan, notification to parents of payment-in-full status, and disclosure of the new loan to the student.

Description:
FIELD OF THE INVENTION  
       [0001]     The present invention relates to the financial industry and particularly to a method, computer program product and system for enabling a student/child to refinance a parent&#39;s Federal PLUS loans.  
       BACKGROUND OF THE INVENTION  
       [0002]     Due to the increasing costs of college tuition, a student&#39;s parents will most likely take out Federal PLUS loans in order to help finance their child&#39;s education. Upon graduation, however, many parents expect the student to make the payments on the PLUS loan; the student may also choose to do so him/herself Currently there is no simple or convenient process or system by which a student can transfer responsibility of the loan to himself/herself  
         [0003]     Currently, the student could take out a personal loan in the payoff amount of the PLUS loan. Most recent graduates, however, will not be able to qualify for such a loan since they have such a short credit history. Also, it would be more convenient if the student can refinance using the same financial institution as the parent did when initially getting the PLUS loan. Further, there can be tax benefits to student loans that are not available with personal loans. Alternatively, the student will make the payment on the parent&#39;s loan, while keeping the loan in the parent&#39;s name. With this solution, the obligation legally remains in the parent&#39;s name, regardless of the agreement made between the student and parents. This can prevent the student from receiving potential tax benefits, and may complicate the student&#39;s relationship with his/her parents.  
         [0004]     There is a need for a better solution to allow the student and parent to better share the costs of college financing.  
       BRIEF SUMMARY OF THE INVENTION  
       [0005]     Embodiments of the present invention provide a system, computer program product, and method that enables a loan to be refinanced by the student into a private loan after a certain period of time has passed. The original parent borrower&#39;s PLUS Loan is paid-in-full and the student becomes the borrower of record on a new private loan. 
     
    
     BRIEF DESCRIPTION OF THE DRAWINGS  
       [0006]      FIG. 1  is a diagram of the system according to an exemplary embodiment of the invention; and  
         [0007]      FIG. 2  is a diagram of the method according to an exemplary embodiment of the invention. 
     
    
     DETAILED DESCRIPTION OF THE INVENTION  
       [0008]     The invention relates to systems and methods for assuming loans. Specifically, embodiments of the invention describe a system, computer program product, and method for allowing a student to refinance a parent&#39;s PLUS Loan by obtaining a private student loan in the student&#39;s name.  
         [0009]     An exemplary embodiment of the invention is described below in connection with  FIGS. 1 and 2 .  
         [0010]     For purposes of this disclosure, the term “parent” or “parents” means any parent, legal guardian or other person able to secure financing on behalf of a student. The term “student” means any person for whom financing is obtained by a parent.  
         [0011]     The computer-based system  100  of the present invention, as shown in  FIG. 1 , includes at least one server  11  in communication with a computer network  13  and at least one database  12 . In one embodiment, the system  100  includes multiple servers  11  a z900 IBM mainframe, HP Unix server, and Windows Itatium servers in communication with an extensive computer network  13  that connects locations, people, and technologies. The database stores information related to the module  20 . A loan refinance module  20  runs on the server  11 . At least one Web Site  10  is linked to the server  11  through the computer network  13 . A Web Site  10  provides a user interface through which a user, such as a student, using a client computer  21  can interface with the system  100  over the Internet  34 .  
         [0012]     The system  100  is controlled by an entity  15  through the network  13 . In the illustrated embodiment, the entity  15  is a financial institution  15  and particularly a financial institution in the business of providing educational financial aid, such as federal student loans and federal PLUS loans.  
         [0013]     Illustratively, the loan refinance module  20  is a computer program application product embodied on a computer useable medium. The loan refinance module  20  runs on the server  11  and has access to the database  12 . The module  20  allows the system  100  to carry out the method described below in connection with  FIG. 2  in response to input by the student though client computer  19  and the financial institution  15  through the network  13 .  
         [0014]     Optionally, a loan management module  21  also runs on the server  11 . Illustratively, the loan management module  21  is a computer program application product embodied on a computer useable medium. The loan management module  21  runs on the server  11  and has access to the database  12 . The module  21  enables the system  100  to allow the student  18  to manage the new loan  17  by interfacing with the Web site  10  as described in more detail below in connection with  FIG. 2 .  
         [0015]     The system  100  is configured to allow a student to apply online to refinance his/her parent&#39;s  14  loan  16 . Loan  16  can be, for example, a federal PLUS loan or any other loan type. An exemplary method  201  is illustrated in  FIG. 2 . Steps S 1 -S 3  are prerequisites  200  to the method  201 . Specifically, the parent must have a loan  16  in order for the student to subsequently refinance the loan. The parent  14  applies for a loan  16  in step S 1 . The parent&#39;s loan  16  is approved, certified and disbursed in step S 2 . In a preferred embodiment, the parent&#39;s loan  16  was obtained from and serviced by the particular financial  15 , as opposed to some other financial institution or lender.  
         [0016]     At a time after the parent has obtained the loan, the student contacts the lender in step S 4  to apply to refinance the loan  16 . Optionally, the student  18  is only able to apply to refinance only after the student graduates or leaves school. It is further optional that a time period of, for example twenty-four months, or any other predetermined time frame is allowed to pass before the student  18  is permitted to apply to refinance. Allowing for graduation and time to pass, as in step S 3 , may allow the student  18  to get a job, be better suited to accept responsibility of the loan  16 , and begin to build a credit history.  
         [0017]     The method  201  is illustrated beginning in step S 4  of  FIG. 2 . In step S 4 , the process is initiated either by the student  18  or by the student  18  and parent  14 . The student  18  and parent  14  would most likely initiate the process together when it is the parent  14  who wants the student  18  to take on responsibility for the loan  16 . The parent  14 , however, may not initiate the process by themselves. The student  18  (and optionally, the parent  14 ) contacts the financial institution  15  using any communication method, including telephone, local area network (LAN) messaging, wide area network (WAN) messaging, and including through a World Wide Web-based communication. Preferably, the student  18  contacts the financial institution  15  by interfacing with the Web site  15  via client computer  19 . The student  18  fills out an application form on the financial institution  15  Web site  10  and requests pre-approval for a new loan  17 . In the illustrated embodiment, only the student  18  for whose education the PLUS loan  16  was taken may request to take over the parent&#39;s loan  16 .  
         [0018]     The information collected from the student  18  is stored in a database  12  within the system  100 . The memory storing the database  12  is any conventionally known or used computer memory unit.  
         [0019]     In step S 5 , the loan refinance module  20  analyzes the data input by the student  18  and determines whether to return a positive or negative credit decision. For example, the module  20  obtains the student&#39;s  18  credit history and calculates the student&#39;s  18  debt-to-income ratio. The module  20  then compares the information to the financial institution&#39;s  15  pre-established eligibility criteria, such as a minimum credit score and maximum debt-to-income ratio (i.e. a minimum FICO score and a debt to income ratio that is calculated by dividing the monthly debt by the current gross monthly income). If the student  18  meets the predetermined criteria, for example, the student has a credit score falling within a required range and a debt-to-income ratio falling within a required range, the module  20  issues a positive credit decision. If the student fails to meet the predetermined criteria, the module  20  issues a negative credit decision.  
         [0020]     Depending on the criteria or as desired by the financial institution  15 , the financial institution  15  can analyze all or portions of the data input by the student to arrive at a positive or negative credit decision. This can allow more complicated criteria to be readily considered. For example, weight may be given to potential future income, the value of certain of the student&#39;s assets, or other information. It is desirable to permit the financial institution  15  to consider the circumstances of the student in such instances. In this manner, the system  100  can accommodate a variety of circumstances and eligibility criteria. When the financial institution  15  arrives at a positive or negative credit decision, the financial institution  15  inputs the decision into the module  20  via the network  13 .  
         [0021]     If a positive credit decision is made, the student  18  notified on-line or via an email or letter informing him/her of the decision. Preferably, the module  20  automatically generates and sends an email upon arriving at the positive credit decision.  
         [0022]     In step S 6 , the student  18  will then complete and electronically sign the promissory note by interfacing with the Web site  10  via client computer  19 . The student  18  will provide income documentation and proof of identity in this step or this information will be verified using data available from the credit bureau(s). AU of this information is provided through a web-based form on the financial institution&#39;s  15  Web site  10 . For example, electronic copies or electronic versions of documents can be uploaded to the system  100  and stored in the database  12  through the Web site  10 . The financial institution  15  can then verify the information provided.  
         [0023]     In step S 7 , upon verification of the student&#39;s  18  information, the module  20  will use the financial institution&#39;s  15  servicing transactions to pay-in-full the parent&#39;s  14  PLUS loan  16  and to issue a new loan  17  in the student&#39;s  18  name. Illustratively, the new loan  17  is a private loan, but is provided as a student loan. Accordingly, the student may be eligible for tax benefits based on the loan  17 , such as a tax deduction for the interest paid on the loan  17 .  
         [0024]     In step S 8 , the parent  14  is notified that the loan  16  is paid-in-full. Preferably, the module  20  automatically generates and sends an email notifying the parent  14  upon payment-in-full of the loan  16 .  
         [0025]     In step S 9 , the student  18  is notified of the new loan  17  and repayment begins. Preferably, the module  20  automatically generates and sends an email notifying the student  18  of the new loan  17  upon payment-in-full of the parent&#39;s loan  16 .  
         [0026]     Optionally, the system  100  also allows the student  18  to manage the new loan  17  via the Web site  10 . For this, an optional loan management module  21  runs on the server  11  ( FIG. 1 ). For example, the student  18  can view the loan  17  balance, payment history, payments due, and/or make payments online. In this manner, the invention can provide a student with a convenient and comprehensive site and service for refinancing their parent&#39;s  14  loan  16 , and managing their resulting new loan  17 .  
         [0027]     Referring now to step S 6   a - 1 , if the student  18  receives an adverse credit decision, he/she will receive a denial email or letter (Reg B). Preferably, the module  20  automatically generates and sends an email informing the student  18  that he/she may apply again at a later date upon arriving at the positive credit decision. If, in step S 6   a - 2 , the student  18  chooses to reapply at a later date, the method  201  begins again at step S 4 .  
         [0028]     The system  100  and method  201  provide a simple and convenient way for students  18  to refinance parent loans  16 . Where the financial institution  15  refinances the parent&#39;s loan  16  in the described manner, the student  18  and parent  14  are provided with various advantages over conventional methods for transferring responsibility of parent loans  16  to the student  18 . For example, the system  100  provides a single, convenient interface for the student  18  to take over responsibility for the parent loan  16 . Further, by refinancing the parent loan  16  with the financial institution  15 , the student  18  can receive a student loan  17 , which may have lower rates and tax benefits not available with a conventional personal loan.  
         [0029]     Although the above embodiment is described in connection with a student assuming a parent&#39;s loan, the invention is not so limited. Embodiments of the invention can be used to enable a first person to assume a second person&#39;s loan. In such a case, the first person takes the place of the student  18  and the second person takes the place of the parent  14  in the above described system  100  and method  201 . Further the assumed loan need not be a loan taken for educational purposes, but can instead be, for example, a car loan, a personal loan or other loan.  
         [0030]     The processes and system described above illustrate preferred methods and a typical system of many that could be used and produced. The above description and drawings illustrate exemplary embodiments, which achieve the objects, features, and advantages of the present invention. It is not intended, however, that the present invention be strictly limited to the above-described and illustrated embodiments. Any modifications of the present invention that come within the spirit and scope of the following claims should be considered part of the present invention.