Congratulations, proud parents of graduates! As your student’s first teacher, you should be very proud to see them finish school, and excited to see them transition into a career.
If you borrowed with the Parent PLUS loan program to help your child pay for college, you are not alone. Currently, there are 3.4 million borrowers in the Parent PLUS loan program. The total debt owed at this time by Parent PLUS loan borrowers is $81.5 billion. While that may seem like a large number, it is only a small fraction of the total student loan debt in the US, currently $1,331.7 billion.
Large education bills can be a heavy burden on parents. However, now that your child has graduated, or is within six months of graduation, you may have some options available for loan forgiveness or refinancing.
Do Parent PLUS Loans Qualify for Forgiveness Programs?
Short answer, no, Parent PLUS loans do not qualify for forgiveness programs. However, parents can first consolidate with the Direct Consolidation Loan program, then apply for forgiveness programs.
How to apply for a Direct Consolidation Loan
To consolidate your Parent PLUS Loans you will have to apply for a Direct Consolidation Loan through StudentLoans.gov. This can be done online or by mail. After being reviewed you will be contacted by a consolidation servicer for any remaining tasks to complete.
Continue to pay your loans like normal during the application period, unless the loan or loans are in deferment, forbearance, or you are in a grace period. Once you have confirmation that your new Direct Consolidation Loan is set up your payment methods may change, so be sure to look into that with a consolidation servicer.
Parent PLUS Loan Forgiveness With Income-Contingent Repayment (ICR)
The federal government offers four types of income-driven repayment plans for student borrowers, but ICR is the only one that accepts Parent PLUS Loans. This is a federal program that can lower your monthly payments and offer loan forgiveness after 25 years for eligible applicants. Your loan will need to be consolidated by the Department of Education first to apply. Loans refinanced or consolidated by a private lender are no longer eligible.
According to the Federal Student Aid website, the loan payment amount will be the lesser of the following:
- 20% of your discretionary income or
- What you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income
Under the ICR Plan, your payment is based on your income and family size, not just the specific borrow’s income. This means that if your income increases over time, in some cases your payment may be higher than the amount you would have to pay under the 10-year Standard Repayment Plan. As most salary growth for an individual occurs before 40, this is a larger factor for student borrowers considering ICR.
Something parents should be aware of when considering this option is that the interest payments will likely be higher over the life of the loan than you would be through the Standard Repayment Plan.
Parent PLUS Loan Forgiveness With Public Service Loan Forgiveness (PSLF)
While ICR is a good fit for some, the 25-year timeline can be hard to swallow. Another option through the federal government is the PSLF program. Parents who work full time for certain government entities or nonprofits (and make consistent payments) for 10 years are then eligible for loan forgiveness.
Borrowers need to be on an income-driven repayment plan to qualify for PSLF, so parents will still need to first apply for a Direct Consolidation Loan, and then apply for ICR. Once approved for the ICR Plan, submit the PSLF Employment Certification form.
This repayment strategy is an excellent fit for parents who already have made a career in a PSLF qualifying position or industry.
Refinancing Your Parent PLUS Loans with a Private Lender
If the federal programs are not a strong fit for you, consider investigating refinancing options. As parent borrowers generally have a longer credit history than most student borrowers, there is more information for a lender to go off of when giving you a quote.
If you know you have a high credit score, or believe your credit has improved since taking out the Parent PLUS Loan, refinancing could mean a lower interest rate. A lower interest rate of course means less money spent on interest payments, and more of each payment dedicated to the principal due.
Refinancing with a private company does mean giving up federal loan forgiveness options If you are not utilizing, or planning to utilize federal plans, then it another way to lower your monthly payments, and spend less time in debt.
Check our student loan calculator to compare your rates.
This article was written by Carolyn Pairitz Morris, Senior Editor at Earnest.