The Ultimate Guide to Parent Plus Loan Forgiveness

You had the best intentions by helping your kids pay for college using Parent PLUS Loans. But now that you’re nearing retirement age, the Parent PLUS Loan debt is a heavy burden and source of anxiety. So what can you do? Can Parent PLUS Loans be forgiven? 

The good news is that there are ways to pursue Parent PLUS Loan forgiveness. Read on to learn about how to get out from under a Parent PLUS Loan so you can alleviate financial stress. 

How to get rid of Parent PLUS Loans

If you want to figure out how to get rid of Parent PLUS Loans, we’ve outlined seven possible ways to get your loans forgiven or repayment assistance that can help offset costs. 

1. Public Service Loan Forgiveness (PSLF) 

Parent PLUS Loan borrowers who work in the public sector, such as the government or qualified nonprofits or hospitals, could be eligible for Public Service Loan Forgiveness. 

Through PSLF, it’s possible to get parent student loan forgiveness after serving in the public sector for a decade. To qualify, you must work for an eligible organization or institution for 10 years and make 120 total payments. You must also be on an Income-Driven Repayment Plan (IDR). 

Getting PSLF is a bit of a process for Parent PLUS borrowers, though. You need to use a workaround to get on a repayment plan that’s actually eligible for PSLF. 

Parent PLUS Loans on their own don’t qualify for the program. However, if you consolidate your Parent PLUS Loans using a Direct Consolidation Loan you can then opt into the only IDR plan that’s available for parents: Income-Contingent Repayment (ICR).

So essentially, Parent PLUS Loan borrowers need to:

• Apply for a Direct Consolidation Loan
• Talk to your loan servicer and switch to ICR
• Work in the public sector for 10 years
• Make 120 payments

There’s also a Parent PLUS double consolidation loophole that could make your loans eligible for other IDR plans, like Revised Pay As You Earn (REPAYE), Pay As You Earn (PAYE), and IBR. This process is more time-consuming, but could reduce your monthly payments to just 10% of your income while you’re working toward PSLF.

To stay on track with your progress, you can fill out the PSLF Employment Certification Form each year. Once you’ve met all of the requirements, you can officially apply for PSLF. 

If you go this route, there are no tax bills related to the forgiven amount which isn’t the case for all forgiveness options (more on that later). 

2. Income-Contingent Repayment Plan Forgiveness

In general, federal student loan borrowers can choose from four different Income-Driven Repayment Plans (IDR). Parent PLUS Loan borrowers, however, are only eligible for ICR through a standard Direct Loan Consolidation. The exception is if parent borrowers pursued the double consolidation loophole that’s mentioned above to access other IDR plan options. 

Loan forgiveness through an IDR plan is available to Parent PLUS borrowers but is underutilized because it requires the same Direct Consolidation Loan workarounds to access qualified repayment plans. 

Either way, you have to apply for a Direct Consolidation Loan first. Once your loans are consolidated with a Direct Consolidation Loan, you’ll then be eligible to take advantage of IDR forgiveness under ICR or the other plans. 

Forgiveness at the end of your term

Through this repayment strategy, you’ll pay 20% of your income over a 25-year repayment term. Having a small percentage go to your loans over a longer term means you’ll have lower payments, but you’ll accrue a lot more interest. There’s some relief in sight, though. If you still have a remaining balance at the end of the repayment term, it’s possible to have your loans wiped away with student loan forgiveness. 

One big caveat — according to current tax law, you’ll be liable for paying taxes on the amount that’s forgiven. So if you pursue Parent PLUS Loan forgiveness this way, set aside money for the tax consequences later on. 

If your financial situation isn’t so great, you might get a pass because of something called the “insolvency rule”. The IRS typically considers anyone with more debt than assets “insolvent” and doesn’t tax forgiven debt as income in this case.

You’ll want to keep track of your payments and recertify each year and update your income. At the end of the repayment term, you’ll apply for parent student loan forgiveness with your loan servicer. 

3. Refinance loan into child’s name

As a Parent PLUS borrower, the loans for your child’s education are in your name. You’re solely responsible for paying back the loans, whether you want to or not. 

In the past few years, another option has come on the scene to help. Some student loan refinancing lenders allow you to refinance your Parent PLUS Loans into your child’s name. 

You’ll need to get their consent, of course, and make sure they have good enough credit and income to qualify for the refinancing loan and maintain payments. 

If your child qualifies, they could take out a student loan refinance in their name that pays off your Parent PLUS Loan. The refinance loan could save them money on interest by securing a new, lower rate. 

Be aware that a private refinancing loan pays off the federal Parent PLUS Loan, so student loan forgiveness through PSLF of IDR will no longer be available. 

4. Refinancing on your own 

Although this option isn’t exactly loan forgiveness, you still might save money on Parent PLUS Loans by refinancing them yourself. PLUS Loans have some of the highest interest rates of all federal loan types, which makes the interest accruing a difficult beast to battle. 

Compare various refinancing lenders and see if you qualify for a much lower rate. Make sure the repayment term and rate works for you, financially. Again, remember that you’ll lose access to forgiveness options through PSLF or ICR. 

5. Bankruptcy

Generally, you can’t discharge your student loans in bankruptcy, but there’s a small chance that it’s possible. To qualify, you’ll need to file for Chapter 7 or 11 bankruptcy. You must show that making payments is causing “undue hardship” on you and your dependents. 

According to the Federal Student Aid website, if the courts deem your repayment as causing undue hardship, one of the following scenarios could occur:

• Your loan might be fully discharged, and you won’t have to repay any portion of your loan. All collection activity will stop.
• Your loan might be partially discharged, and you’re still required to repay some portion of your loan.
• You might be required to repay your loan, but with different terms, such as a lower interest rate.

Applying for bankruptcy can severely damage your credit for seven to 10 years, and it costs several hundred dollars to file. Be sure to get professional counsel and review the pros and cons before taking this drastic measure. 

6. Disability 

If you’re currently disabled or become disabled, you might be able to get your Parent PLUS Loan forgiven through Total and Permanent Disability Discharge. You’ll have to apply and provide documentation from a physician, the Social Security Administration, or the U.S. Department of Veterans Affairs. 

It’s important to note that you, as the borrower, must meet the disability criteria, not your child. To get started, apply for Total and Permanent Disability Discharge on the Financial Aid site. 

7. Death 

Thinking of your own death is never pleasant. But the good news is that if you die with a Parent PLUS Loan, the loan dies with you as well. It doesn’t get passed on to your child or anyone else. Similarly, if your child dies, your loans will also be discharged. 

Bottom line 

There are many approaches to consider, if you want to get rid of your Parent PLUS Loan debt. If you need help figuring out the best option for your situation, schedule a consultation with us today. We specialize in creating a repayment strategy for those with six-figure debt and will help you save money on your Parent PLUS Loans.

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