Parent PLUS loans are federal loans intended to assist parents in financing their dependents’ higher education. However, an increasing number of parents are encountering difficulties in repaying these loans.
Here are some reasons why Parent PLUS loans pose significant challenges:
- High Interest Rates: Parent PLUS loans typically carry the highest interest rates among all federal student loans, often exceeding 7%.
- Limited Repayment Options: These loans are eligible for traditional repayment plans, which require higher monthly payments. Additionally, there is only one Income-Driven Repayment (IDR) plan available, known as the Income Contingent Repayment Plan (ICR). To qualify for the ICR plan, borrowers with Direct Parent PLUS loans must first consolidate them into a Direct Consolidation loan.
- Challenges with Forgiveness Programs: Enrollment in the ICR plan is a requirement for federal forgiveness programs like Public Service Loan Forgiveness and Income-Driven Repayment Forgiveness. However, the ICR plan may become unaffordable for many parents, especially those with higher incomes. As a result, there may be limited or no forgiveness by the time all repayment requirements are satisfied.
In light of these difficulties, it is essential for Parent PLUS loan borrowers to carefully consider their repayment strategies. Three common paths to consider include:
- 1. Accelerated Repayment: Paying off the loans as quickly as possible, if feasible.
- 2. Pursuing Forgiveness: Exploring forgiveness programs that align with eligibility requirements, such as Public Service Loan Forgiveness, Income-Driven Repayment Forgiveness, or Total and Permanent Disability Discharge.
- 3. Minimum Repayment Until Death: Opting for the lowest repayment plan until the borrower’s passing.
When choosing a strategy, it is crucial to assess affordability, calculate realistic monthly payments, evaluate long-term feasibility, and consider income changes in retirement. The chosen strategy can be revisited and adjusted over time.
Review our Strategies for Tackling Student Debt page. Remember that you can revisit your strategy at any time.
Explore Forgiveness Options
Like any other borrower, you should determine whether you are eligible for a forgiveness program. The most common are Public Service Loan Forgiveness, Income Driven Repayment Forgiveness, and for older adults, Total and Permanent Disability Discharge.
But you want to take it a step further and determine whether you will be able to meet the program’s requirements.
- PSLF may not make sense if your income is high because you may be done paying your loans on the ICR plan before you reach the 120 required payments. Use the FSA simulator!
- Borrowers cannot afford the ICR plan. Only payments on an IDR plan (ICR for Parent Plus) will continue to count towards PSLF when payments resume.
- You must be employed full-time by a qualifying employer at the time of application and when your loans are discharged. Many borrowers plan to retire before they complete the 120 qualifying payments.
- In school deferments do not count towards PSLF or other forgiveness programs. Make a strategic decision on whether to start paying Parent Plus loans after disbursement.
Under the IDR Account Adjustment Parent Plus loan borrowers can consolidate loans with different repayment histories and get the highest payment count applied to their entire balance if they do it by December 31, 2023.
Repayment Plan Options:
- Parent Plus loans are only eligible for one IDR plan and that is called the Income Contingent Repayment (ICR) plan. They must consolidate first to gain access to this plan.
- To be eligible for ICR, Direct Parent Plus loans must be consolidated into a Direct Consolidation loan! We know, it makes no sense.
- Depending on your household income and situation, explore whether it is more beneficial to file jointly or separately!
- If you and your spouse have federal student loans, you can both choose to pay in the ICR plan. This may provide an affordable option that also allows you to keep the tax benefit of filing jointly.
- If you are pursuing PSLF or IDRF you must enroll in the ICR plan. The problem is that it may be cost prohibitive.
- Caution—If you have your own student loans and Parent Plus loans, if you consolidate them together, the only plan available will be ICR. Seek advice before consolidating.
- Review our Repayment Plan Options Section to learn more about IDR plans.
If you have Parent Plus loans, don’t give up. Contact us. If we can’t help you eliminate your loans, we can give you piece of mind!
Other helpful resources within this guide: