Parent PLUS Borrowers Face Squeeze as Student Loan Payments Resume

As 40 million student loan borrowers return to repayment this month following the three-year Covid forbearance, one group of borrowers is facing particularly dire circumstances: parent borrowers.

Parent PLUS loans are federal loans issued to parents for the benefit of a child’s undergraduate education. These types of loans are unique in that the parent is solely responsible for the loan’s repayment, even though the proceeds of the loan benefit someone else. The student – the child of the Parent PLUS borrower – has no legal obligation to contribute to the loan’s repayment. This differs from cosigned private student loans, whereby a borrower and cosigner have joint legal responsibility.  

These types of loans also typically have higher interest rates than most other federal student loans. And they have access to comparatively fewer repayment options. Making matters worse is that Parent PLUS borrowers have historically been excluded from some of the most beneficial federal income-driven repayment, loan forgiveness, and debt relief programs. Advocates are increasingly sounding the alarm about these borrowers.

Parent PLUS borrowers excluded from key student loan programs

Parent PLUS loans have been left out of key federal student loan programs – in particular, the most generous income-driven repayment plan programs. 

Earlier this year, the Biden Administration announced the new Saving on a Valuable Education (SAVE) plan, billed as the most affordable income-driven repayment plan ever. SAVE has a significant poverty exclusion limit – allowing single borrowers making under $32,000 annually to pay $0 – as well as an affordable repayment formula and a generous interest subsidy that largely ends negative amortization and interest capitalization. Under SAVE, a single borrower making $70,000 per year could have a payment of around $300 per month or less, depending on their breakdown of undergraduate and graduate school loans. 

But Parent PLUS borrowers are excluded from SAVE under federal law. Instead, the only income-driven repayment plan accessible to Parent PLUS borrowers is Income Contingent Repayment (ICR), which is far more expensive than SAVE and other IDR plans. ICR is only available for Parent PLUS loans that have been consolidated via a federal Direct consolidation loan. Under ICR, the same borrower making $70,000 per year would have to pay over $900 per month – more than three times the amount they could pay under SAVE. 

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Education Department closing Parent PLUS Loophole

Despite being excluded from other income-driven plans, like SAVE (as well as IBR and PAYE), some Parent PLUS loans have been able to access these more affordable options through the so-called “double consolidation” loophole. 

Double consolidation involves a process whereby a borrower consolidates some Parent PLUS loans into one consolidation loan, and some Parent PLUS loans into a second consolidation loan, and then subsequently consolidate those two consolidation loans into a third Direct consolidation loan. In some cases, a technical loophole prevents the Education Department from ascertaining that this third and final Direct consolidation loan contains Parent PLUS Loans, allowing that loan to essentially slip under the radar and be repaid under more affordable IDR plans. 

However, there have been no legal guarantees that this would work for borrowers on a long-term basis, as this is a technical loophole – a result of limitations in the Dept. of Education’s computer systems – and not a legal loophole. Federal rules technically only allow Direct consolidation loans containing Parent PLUS loans to be repaid under ICR. Some borrowers who went through the double consolidation process have since been kicked out of lower-payment IDR plans. 

And the double consolidation loophole is now closing. Under the new regulations governing the SAVE program, the Education Department will be formally ending the practice by July 1, 2025. 

Parent PLUS loans still can benefit from some student loan forgiveness and repayment initiatives

Despite significant barriers, Parent PLUS borrowers can still access an array of federal student loan forgiveness programs, such as Public Service Loan Forgiveness, the Total and Permanent Disability discharge program, and Borrower Defense to Repayment. Parent PLUS borrowers also could have qualified for President Biden’s sweeping student loan forgiveness plan of $10,000 or $20,000, if it had not been struck down by the Supreme Court last summer.

Parent PLUS borrowers can also benefit from the IDR Account Adjustment, a temporary Biden administration initiative that can provide borrowers with retroactive “credit” toward loan forgiveness on a 25-year repayment term under IDR, as well as toward the 120 “qualifying payments” required to receive loan forgiveness through PSLF. The benefits of the program will be applied, “to all PSLF-eligible Direct Loans, including consolidated and unconsolidated parent PLUS loans,” according to Education Department guidance.

And Parent PLUS borrowers might become eligible to participate in President Biden’s new student loan forgiveness program that is still under development. While details of this new debt relief program are still being worked out, the Education Department has developed an outline of borrowers who could potentially qualify, including borrowers who are facing extreme hardships or have seen their balances increase substantially over time due to interest capitalization. More details on this program should come out in the coming months as the department moves forward with negotiated rulemaking, a multi-step administrative process to create new regulations.

Advocates call on Biden Administration to help Parent PLUS borrowers

Still, many Parent PLUS borrowers are struggling, and advocates are increasingly sounding the alarm.

Earlier this month, the NAACP sent a letter to Education Secretary Miguel Cardona, urging him to formally extend the benefits of all income-driven repayment plans – including SAVE – to Parent PLUS borrowers.

“Parent PLUS borrowers face a grim reality as loan repayments restart,” said the NAACP. “The new SAVE plan does not apply to Parent PLUS borrowers, and there is currently no plan to assist such borrowers when loans restart… The Department of Education has the authority under the statute that authorized ICR to apply IDR plans to Parent PLUS borrowers, as it did for student borrowers. The NAACP calls on the Department of Education to swiftly exercise this authority to fully extend all income-driven repayment plans to Parent PLUS borrowers.”

So far, there has not been a direct response from Biden Administration officials.