August 13, 2017

Parent PLUS Loan Forgiveness: Is It Possible?

Read more about Student Loan Forgiveness

Did you take out student loans for your child to go to college? Has some regret set in? You do have some repayment options - just not as many as student borrowers.

We get it. You wanted the best for your child. You saw potential for big things, so you borrowed money through a federal loan to get him through college.

Now, the payments are due and you can't afford them. What's next?

Option 1: Get the Payments Deferred

Just like student loans, a Parents PLUS loan, offered by the government directly to parents, goes into standard repayment.

This means a fixed rate payment over 10 years. Depending on how much you borrowed, this could be a big payment.

The difference with the Parents PLUS loan is the payments start right away. You get 60 days after the first disbursement off, and then payments start.

This would be entirely different if you were looking at a true student loan. Students get the entire four years they are in school full-time, plus six months after graduation. As a parent borrower, you can get this grace period too. It's just not automatic. You have to ask your loan servicer for it.

This means you can defer the loan as long as your child is enrolled in school full-time. You also get the standard six-month grace period following graduation.

Interest does not stop accruing during this time, though.

Once you defer the payments, move on to Option 2.

Option 2: Look at Your Repayment Options

As a Parents PLUS borrower, you have one chance at an income-driven repayment plan. Only the Income Contingent Repayment Plan is applicable. It's not as straightforward as you think, though. You can't apply for ICR directly.

First, you must consolidate the Parents PLUS loan into a Direct Consolidation Loan. This means transferring your loan into a Direct Consolidation loan. Your interest rate becomes the weighted average of all loans included in the consolidation.

Many parent borrowers don't realize they don't need more than one loan for student loan consolidation. You can consolidate your Parents PLUS loan into a Direct Consolidation loan all on its own - and get better terms.

Once you consolidate your PLUS loan, you can apply for the Income Contingent Repayment Plan. With this plan, your payments are the lesser of:

  • 20% of your discretionary income
  • The loan amortized over 12 years with fixed payments

If you qualify for a payment that equals 20% of your discretionary income, you may be eligible for loan forgiveness after 25 years.

Note:Any loan amount forgiven is subjected to income taxes.

Once you consolidate and apply for ICR, determine if you qualify for Option 3.

Option 3: See If You Qualify for Public Service Loan Forgiveness

Another federally-run program - called Public Service Loan Forgiveness, or PSLF - forgives your loan balance after 10 years of payments. Graduates working in any type of government agency or non-profit agency often qualify. But it applies to parents with Parents PLUS loans too.

Here's how to qualify:

  • You must work full-time for a government or non-profit agency
  • You must be on an income-driven repayment plan (in this case ICR)
  • You must make consistent payments for 10 years

This brings us right back to Option 2. Again, the Direct Consolidation loan is the answer. You can't apply for the Income Contingent Repayment Plan until you consolidate your loan. Once you consolidate and apply for the ICR plan, you can work towards the PSLF.

Option 4: Work Towards Public Service Loan Forgiveness

Public Service Loan Forgiveness isn't a given even if you hold the right job. Once you know you might qualify for PLSF, complete the PSLF Employment Certification Form. Send the completed form to the Department of Education (DOE). Any time you change jobs, you must complete another form.

We recommend you complete a form annually. This helps the DOE keep track of your eligibility for PLSF.

Make sure you make your payments on time during this time. The first payment you make on the ICR plan counts towards your eligible payments. Your payments must be made within the 15-day grace period of your due date to count.

Option 5: Apply for Public Service Loan Forgiveness

Once you complete your 10 years of public service, you can apply for PSLF using the DOE's application.

You don't qualify for PSLF? Read on for Options 6-8. There are still more options for you.

Option 6: Look at Changing the Repayment Term

Parents who are ineligible for PSLF aren't stuck with high payments. If you don't want the ICR plan, you have two other options:

  • Graduated repayment: This plan offers low payments at the start of the loan repayment. The payments cover just the interest for the first 2 years. After that, the payment gradually increases every 2 years over a 10-year term. The payment is capped at three times your first payment.

  • Extended term: This is a fixed payment option that changes the term of the loan. Your loan servicer can tell you the term you qualify for. It depends on your loan amount. The terms range from 12 years to 30 years.

    Something to consider with both plans is the interest you pay. You'll likely pay more than the standard plan with both options.

  • Graduated repayment plan: You might pay very little principal for the first two years. This stretches out the time you have outstanding principal. This may mean more compounded interest over the life of the loan.

  • Extended repayment plan: The principal is amortized over a longer period. The longer the principal is outstanding, the more interest you pay.

These plans do make payments more affordable. Consider the long-term consequences before you make a decision, though.

Option 7: Refinance Your Parents PLUS Loan

If you haven't yet found anything you qualify for or are comfortable taking on, you have one more option. You can refinance your Parents PLUS loan.

You must refinance with a private lender. This means you must qualify for it. The DOE doesn't offer any refinancing options.

If you choose this option, we encourage you to shop around. Check out what different lenders offer. There are your big-name banks, local banks, and credit unions. Some may offer variable rates. Others may have fixed rate plans. Ask around to see what options are available to you.

Before you apply, though, we recommend taking a look at your credit.

Request a free copy of your report from one of the three credit bureaus (Equifax, TransUnion, or Experian). Look over the report carefully. If you see any reports of late payments, make sure you keep those accounts current moving forward. If you see any mistakes, contact the bureau to get the right information reported.

The better your credit score, the better terms banks may offer you to refinance your Parents PLUS loan.

If refinancing doesn't provide an affordable option, you have one more choice. Move on to Option 8 to learn more.

Option 8: Apply for Deferment or Forbearance

The DOE does offer help for parents struggling to make payments. If the ICR, graduated repayment, or extended term options don't help, consider applying for deferment. You may be eligible for deferment while your child is enrolled in school. You just have to ask for it.

Once your child is out, though, payments begin after six months. If you have an economic hardship, you can apply for deferment. Your loan servicer can help you determine if you qualify. If you do, the deferment can last for up to 3 years.

If you do qualify for deferment, it doesn't mean your interest doesn't accrue. Even though you don't make payments, the interest still adds up. Your loan servicer will add the accrued interest to your loan balance when you start making payments again.

If your loan servicer can't get you qualified for a deferment via the DOE, they may offer you a temporary forbearance. This is a temporary halt on required payments. Once again, the interest accrues during this period.

The Bottom Line

Don't give up on your repayment options if you have a Parents PLUS loan. It's easy to feel discouraged when most federal programs exclude PLUS loans. You have options. You just have to talk with your loan servicer.

After you exhaust your options through federal programs, see if you can get refinancing through the private-loan (although usually more expensive) route. The good news is that unlike student loans, you won't be giving up a lot of federal benefits by refinancing. Explore your options and do what is right for you.

More from CreditDonkey:


Student Loan Forgiveness


Should I Consolidate Student Loans


How to Lower Student Loan Payments

More Articles in Money Tips


Leave a comment about Parent PLUS Loan Forgiveness: Is It Possible?

Name
Email (won't be published)


REPAYE

You're not alone if you hit a roadblock with keeping up with your student loans. There's a way you could lower your monthly payments with the REPAYE Program. Here's what you need to know.








About CreditDonkey®
CreditDonkey is a credit card comparison website. We publish data-driven analysis to help you save money & make savvy financial decisions.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed on this page are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

†Advertiser Disclosure: The card offers that appear on this site are from companies from which CreditDonkey receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). CreditDonkey does not include all companies or all offers that may be available in the marketplace.

*See the card issuer's online application for details about terms and conditions. Reasonable efforts are made to maintain accurate information. However, all information is presented without warranty. When you click on the "Apply Now" button you can review the terms and conditions on the card issuer's website.

CreditDonkey does not know your individual circumstances and provides information for general educational purposes only. CreditDonkey is not a substitute for, and should not be used as, professional legal, credit or financial advice. You should consult your own professional advisors for such advice.