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? Are there any other repayment options? 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. To test out different scenarios, check out our parent loan repayment estimator and calculator to see what may be the best option for you.
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 the Public Service Loan Forgiveness program.
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 loan payments. You must also be on an income-driven repayment (IDR) plan.
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 full-time in the public sector with a qualifying employer for 10 years
- Make 120 qualifying 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 Income-Based Repayment (IBR). This process is more time-consuming, but could reduce your monthly payments to just 10% of your discretionary 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 loan balance 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 IDR plans. Parent PLUS Loan borrowers, however, are only eligible for the ICR plan 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 student loan repayment strategy, you’ll pay 20% of your discretionary income over a 25-year repayment term. Having a small percentage go to your loans over a longer term means you’ll have lower student loan 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. However, a provision of the American Rescue Plan allows for temporary tax-free loan forgiveness through December 2025. That being said, if you pursue Parent PLUS Loan forgiveness this way, it’s best to 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 student loan debt 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 refinancing with a private lender will pay 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.
FAQs
Parent PLUS Loans don’t qualify for student loan forgiveness programs on their own. However, if you consolidate using a Direct Consolidation Loan, your loans will be part of the Federal Direct Loan Program. You’ll then qualify for Public Service Loan Forgiveness or Income-Contingent Repayment, which also offers forgiveness.
Parent PLUS Loans are discharged in the event of death. If the parent borrower or child passes away, loans are discharged by the U.S. Department of Education.
Parents have the sole responsibility of paying back Parent PLUS Loans. The child who benefits from the loan is not legally liable to repay the loans.
In general, Parent PLUS Loans are the responsibility of the parent. However, it’s possible to transfer the loan to the student by refinancing with select lenders.
If you fail to make payments on your Parent PLUS Loans on time, your credit might be adversely affected. On the other hand, if you make payments in full and on time it could help build credit.
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My retired mother took out a Parent Plus Loan for my son. What should she do to have the loan forgiven?
If her income is low enough and she doesn’t have spousal income as well, she could consolidate the loan, get it on ICR, and pay minimal payments until the loan is forgiven. However, that’ll only work if her income really is quite low and the debt is above 50k. If it’s below that I’d suggest refinancing the loan into the child’s name or your own, or simply paying it off rapidly.
I have a $87,000. parent plus loan for my daughter, who is a nurse. I am 59, and would like to retire in 3 years. I did consolidate the loans I had, and I am currently in a repayment plan and in PSLF. However, I still have 8 years to reach my 120 payments. I have wondered if the saving would be comparable if it is refinanced and transferred to my daughter at a lower rate. or if paying on it for 10 years then the rest forgiven still a better savings. Trying to figure out if I can retire in 3 years or not. If there is any other options.
You can use our Student Loan Calculator to compare the numbers to see what the difference might be. You can also book a consult to have one of our student loan experts analyze your situation and explain your options to help you make the best decision.
I have $235,000 in a direct loan consolidation ( parent plus loans were consolidated). I have applied for and have been accepted into PSLF. The payment is based on my wife and my income of AGI $171,800 because we file jointly, with only one dependent. If we file separately right away in 2021, will they change payment to just my income (71,000 agi) right away or does it have to be paid for 12 months before payment due is changed. Payment right now is about $2300.
You can recertify your income when you have a drop in income. This article mentions the pandemic, but has step by step on how to do it: https://www.studentloanplanner.com/lower-student-loan-payment-income-dropped/
My parents took out a Parent PLUS loan for my college education, but I make all of the payments. I’ve been a federal government employee for the past 15 years & have 18 years until my retirement. Is it worth the effort to attempt to consolidate the loans in my name to try for the PSLF? It seems risky.
Hey Jody, in general a Direct Consolidation Loan can provide you with access to income-contingent repayment, which can lower your monthly payment and create a path to loan forgiveness. With that being stated, guidance is limited since we will need to know your situation in detail (amount of student debt, forgiveness eligibility, etc.). For that, a consult with our team is recommended. Please visit our Parent PLUS Loans blogs for more information as well.