Parent PLUS Loans: How They Work, Loan Forgiveness, And More (2024)

Parent PLUS Loans: How They Work, Loan Forgiveness, And More (1)

This is one of the most common questions I get almost everyday - I can't afford my Parent PLUS Loans, what do I do?

I'm a firm believer that parents should NOT be taking out loans to pay for their children's' education. There are a lot of reasons why it's a bad idea, and I cover most of them in my Forbes column.

The fact is, though, if you're reading this article, it's too late. You've already borrowed and now you're struggling to pay it back. And the most common way that parents borrow money to pay for college is through Parent PLUS Loans.

They sound like a good idea - parents can get Federal loans with all the great benefits that students get. The trouble is, that's wrong. In fact, Parent PLUS Loans don't offer any type of income-based repayment plan (directly) nor do they qualifyany type of student loan forgiveness programs (well, once again, this is nuanced as well and we discuss below).

In fact, the options are extremely limited with Parent PLUS Loans. You have a few workarounds, but typically student loan refinancing or working together as a family are your best bets. If you're considering refinancing, we recommend Credible. There are some lenders that will allow you to even refinance your Parent PLUS loan into your child's name. Check out Credible here, and if you do refinance, get up to a $1,000 bonus!

Table of Contents

The Myths Of Parent PLUS Loans, IBR, PAYE, And PSLF

Parent PLUS Student Loan Refinancing

Traditional Deferment, Forbearance, and Cancellation Still Apply

The ICR Workaround Via Student Loan Consolidation

Consider Getting Professional Help

Talking With Your Family

Final Thoughts

The Myths Of Parent PLUS Loans, IBR, PAYE, And PSLF

First, there are a lot of myths surrounding what you can or can't do with Parent PLUS Loans, so let's bust those right now.

If you have Parent PLUS Loans,you cannot:

  • Qualify for Income-Based Repayment (IBR)
  • Qualify for Pay-As-You-Earn Repayment (PAYE)

If you are on the standard 10-year repayment plan for your Parent PLUS Loan, you are eligible for Public Service Loan Forgiveness (PSLF). However, since PSLF requires 120 payments (or 10 years of payments), you'll have nothing left to forgive at the end.

Options To Lower YourParent PLUS Loan Payments

However, there are still options available to lower your student loan payments. Each one requires careful consideration of the pros and cons to see what's right for you.

Change Your Repayment Plan

First, you can still change your repayment plan to:

  • Graduated:Graduated repayment starts off with monthly payments at or slightly above an interest-only payment and increases the monthly payment every two years. The final payment is no more than three times the initial payment.
  • Extended:Extended repayment extends your repayment term to 12, 15, 20, 25 or 30 years, depending on the amount owed. This will lower your monthly payments to be level across the new loan term.

With both of these plans, you will see lower payments. However, with the graduated plan, these payments will rise over time. With the extended plan, the payments will remain the same. The drawback of both of these options is that you will pay more interest over the life of the loan. However, if affordability of the monthly payment is your key obstacle, then interest shouldn't matter too much.

Refinance Your Loan

Second, you could refinance your Parent PLUS Loan into a private student loan. Private loans typically offer lower payments and lower interest rates, however, many of these low rates are variable and could rise over time. But, for many, the much lower payment makes up for any potential rise in the future.

We partner with Credible to help people refinance their student loans. Credible is a comparison tool that allows you to compare rates in less than 2 minutes,without a credit check! As a bonus, College Investor readers can get a $1,000 bonus when they refinance with Credible.

Get started now and see if you can save money refinancing your loan with Credible.

Parent PLUS Student Loan Refinancing

For borrowers with Parent PLUS Loans that have good credit, one of the best options (if you can afford it and don't qualify for student loan forgiveness) is to refinance your student loan. Refinancing allows you to potentially get a lower interest rate or lower payment than you currently have.

We break down the best places to refinance your student loans here, and we also recommend Credible as your first stop to refinance your loans.

Some lenders have a unique program where you can refinance your Parent PLUS Loan out of the parent's name, and into the student's name. It might still require the parent to cosign, but these programs also have cosigner release after a certain number of on-time payments. This is a great program to take the burden off the parents and put it on the student (who got the benefits to begin with).

The lenders that offer this include:

Earnest

Earnest is another lender that allows you to refinance your Parent PLUS Loans into your student's name.

To start the process,the child/student should go to Earnest and select "Get Your Rate". When entered the information, you should select Parent PLUS Loan and enter the loan information that pertains to your Parent PLUS Loan.

Check out Earnest here.

LendKey

LendKey is the third major lender that allows you to refinance your student loans from the parent's name to the student's name. They also have very competitive rates and terms for borrowers.

To start the process,the child/studentshould go toLendKey and select "Apply Now". They should have the loan information and documents that pertain to your Parent PLUS loan handy when doing the process.

Check out LendKey here.

Traditional Deferment, Forbearance, and Cancellation Still Apply

For Parent PLUS Loans, borrowers still have the option to apply for deferment, forbearance, and student loan cancellation.

Deferment and forbearance are temporary ways to stop making payments on your student loan. You can read more about deferment and forbearance here.

Parent PLUS Loans can also qualify for student loan cancellation, which is different from student loan forgiveness (we explain the difference here). If you are totally and permanently disabled, or the loan was taken out under fraudulent circ*mstances, you could have the loan cancelled.

The ICR Workaround Via Student Loan Consolidation

Third, there is a potential workaround that will allow some borrowers to convert their Parent PLUS Loan into a Federal Direct Consolidation Loan. This simple change will allow borrowers to qualify for income-contingent repayment (ICR), and also for Public Service Loan Forgiveness (PSLF).

ICR is an income-based repayment plan that is not as generous as IBR or PAYE. Borrowers paying on the ICR plan pay 20% of their discretionary income for up to 25 years. At the end of the 25 year period, the remaining debt is discharged.And, unlike IBR and PAYE, borrowersdon't need to meet incomerequirements to qualify under the plan.

Borrowers who have Federal Direct Consolidation Loans are also able to qualify for PSLF (Public Service Loan Forgiveness). With PSLF, you can have your debt forgiven in 10 years (120 payments). If you combine ICR with PSLF while paying your direct consolidation loan, you can save a good deal on your student loan debt.

What most Parent PLUS Borrowers don't realize is that you don't need to have multiple loans to consolidate. You can have just the single Parent PLUS Loan, and you can apply for student loan consolidation. Anyone can consolidate their Parent PLUS Loans for free at StudentLoans.gov.

By consolidating your Parent PLUS Loan, you essentially convert it into a Federal Direct Consolidation Loan, and now you're eligible for ICR and PSLF. Win-win!

Consider Getting Professional Help

In all my time working with student loan debt, dealing with Parent PLUS Loans is the absolute worst. They don't offer as many options as other loan types, and when parents are struggling with their debt, it can really hurt an entire family.

The best place to get help with your loans is by calling your lender and working with them. You can also go online to StudentLoans.gov and do many things with your loan, including changing your repayment plan.

If you're not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommendThe Student Loan Plannerto help you put together a solid financial plan for your student loan debt. Check outThe Student Loan Plannerhere.

Talking With Your Family

Finally, it never hurts to talk about your student loan debt situation with your family. Remember, you took out these parent student loans to help your child pay for their college education. After graduation, the hope is your child will earn more and be financially well-off.

While no parent wants to burden their children, being buried by student loan debt can be detrimental. You might not be a burden to your children now, but if you can't afford retirement because your Social Security is being garnished to pay back the debt, you could end up needing even more support in the future.

Having open and honest dialogues with your children about student loan debt, and even asking for support with the payments, may make a lot of sense for some families. You helped your child pay for their education, maybe they can help pay you back for it after graduation.

Regardless, your children should know where you stand financially, especially if you can't afford to make your Parent PLUS Loan payments.

Final Thoughts

Parent PLUS Loans are the worst student loans, and we highly recommend avoiding them if at all possible. If you're already reading this, it's probably too late. As such, really focus on working together as a family to pay down the loans, and see if refinancing them makes sense.

Are you struggling with your Parent PLUS Loans?

Parent PLUS Loans: How They Work, Loan Forgiveness, And More (2024)

FAQs

How does student loan forgiveness work for parent PLUS loans? ›

Parent borrowers may be eligible for Public Service Loan Forgiveness (PSLF) after making 120 qualifying payments (ten years). Parent PLUS loans are eligible if they are in the Direct Loan program or included in a Federal Direct Consolidation Loan. The borrower must work full-time in a qualifying public service job.

What is the loophole for parent plus borrowers? ›

Key Points. Normally, parent PLUS loan borrowers can't access the most generous income-driven repayment plans without jumping through loopholes. The popular double consolidation loophole will be closing in 2025. Until it closes, the loophole allows parent PLUS loan borrowers to access the SAVE plan.

Who is ultimately responsible for paying back a parent PLUS loan? ›

Can the loan be transferred to the student? No, a Direct PLUS Loan made to a parent cannot be transferred to the child. You, the parent borrower, are legally responsible for repaying the loan.

How can parent PLUS loans qualify for PSLF? ›

Direct PLUS Loans for Parents

These loans are eligible for PSLF only if they've been consolidated into a Direct Consolidation Loan and are being repaid under the Income-Contingent Repayment (ICR) plan.

Do parent PLUS Loans have to be paid back immediately? ›

If you took out a federal parent PLUS loan for your child's education, you don't have to start paying it back right away. Parent PLUS loan deferment is available up until six months after your child graduates or drops below half-time enrollment. Interest will accrue on the loans during a deferment.

What if I can't pay my parent PLUS loan? ›

If you can't pay off the loan immediately, you have two options: rehabilitation and consolidation . Rehabilitation: After 9 months of reasonable payments (based on your income), your loan will be in good standing. Rehabilitation removes the default note from your credit report.

Will parent PLUS loans be forgiven in 2024? ›

However, if you consolidate your loans after July 1, 2024, and you were employed in an eligible job prior to the time you consolidated, a weighted average will be used to determine what payments were made on parent PLUS loans eligible for forgiveness.

How to lower parent PLUS loan payments? ›

Refinancing. If you have good credit and enough household income to qualify, you may also be able to refinance your Parent PLUS loan to a lower interest rate through a private lender, which can potentially save you money.

Can I get my name off a parent PLUS loan? ›

Refinancing is only way to transfer ownership of a Parent PLUS loan from you to your child. To do this your child must refinance your Parent PLUS loan into their own name.

How to get out of a parent PLUS loan? ›

Here are four methods you can try for working toward parent PLUS loan forgiveness, depending on your personal situation.
  1. Income-Contingent Repayment (ICR)
  2. Public service loan forgiveness (PSLF)
  3. Career-based loan repayment assistance programs.
  4. Refinance parent PLUS loans in your child's name.

Can I transfer my parent PLUS loan to my son? ›

Parent PLUS loans are made directly to parents for their child's education. Under the current rules, parents cannot transfer these federal loans to a child, and they are solely responsible for paying back the loan.

Who claims a parent PLUS loan on taxes? ›

Parent PLUS loans are educational loans, and the borrower can get an income tax deduction. When borrowers review their tax deductions, they can deduct up to $2,500 per year in interest paid on the Parent PLUS loan.

Will parent PLUS Loans ever be forgiven? ›

Your parent PLUS loan may be discharged if you (not the child) become totally and permanently disabled, die, or (in some cases) file for bankruptcy. Your parent PLUS loan also may be discharged if the student for whom you borrowed dies.

What is the parent plus double consolidation loophole? ›

Double consolidation is when a borrower consolidates their Parent PLUS loans twice in order to create a new Direct Loan that is eligible for all available IDR plans and Public Service Loan Forgiveness (PSLF).

What happens to my parent PLUS loan when I retire? ›

The Education Department doesn't forgive loan balances for parents when they retire. It will keep sending bills and adding interest until you pay off the debt, die or become totally and permanently disabled, or qualify for one of the department's student loan forgiveness programs.

Do parent PLUS loans qualify for the save program? ›

If you consolidate parent PLUS loans into a Direct Consolidation Loan, that new loan is eligible for the Income-Contingent Repayment (ICR) Plan but will not be eligible for the SAVE Plan—consolidated or not.

Are parent PLUS loans considered Direct Loans? ›

To qualify for a Direct PLUS Loan, you must pass a credit check. You will also be charged an origination fee, which is deducted from the loan disbursem*nt before you or your school receives the funds. There are two types of Direct PLUS loans: the Grad PLUS loan and the Parent PLUS loan .

Are both parents responsible for parent PLUS loan? ›

A common misunderstanding area of the Parent Plus loan is legal ownership. These loans are the legal responsibility of the parent who signs the promissory note. This means it is the parent's legal and financial responsibility to repay this loan.

What student loans are not eligible for forgiveness? ›

You're not eligible for federal student loan forgiveness programs if you have private loans, but there are other strategies for managing private loan debt.

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