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Two Parent PLUS Loan Consolidation Options You Should Know

You helped your child pay for their college education by taking out Parent PLUS Loans with the U.S. Department of Education. As a Parent PLUS borrower, these student loans are your responsibility, even if they went to your child’s education.

Parent PLUS Loans have limited loan repayment plan options, and they don’t offer student loan forgiveness or income-driven repayment plans. So, at some point, you might want to make your loans more manageable.

Fortunately, you can do so with Parent PLUS Loan consolidation using two different options: a new Direct Consolidation Loan or refinancing.

A Direct Consolidation Loan can provide you with access to income-contingent repayment (ICR Plan), which can lower your monthly payment and create a path to loan forgiveness. Whereas, refinancing can lower your interest rate or negotiate better loan terms.

Here’s what you need to know about Parent PLUS loan consolidation options.

Parent PLUS loan consolidation through Uncle Sam

The good news is PLUS loan borrowers can consolidate their federal loans into a new Direct Consolidation Loan. Even if you have no other federal student loans to consolidate, you can unlock more benefits with a Direct Consolidation Loan.

Using a new Direct Consolidation Loan, your old student loans are paid off. So your current loan no longer exists. Then you’re left with a new loan, potentially with a longer loan repayment term and lower monthly payments. This is helpful if you’re looking to make your monthly payments more manageable.

Keep in mind that you can’t consolidate your Parent PLUS Loans with other federal student loans your child might have in their own name.

Repayment benefits of a Direct Consolidation Loan

Choosing a federal Direct Consolidation Loan includes a major benefit. You become eligible for the Income-Contingent Repayment (ICR) plan, which is one of four income-driven repayment options (IDR) available to Parent borrowers.

The Income-Contingent Repayment plan caps monthly payments at 20% of your discretionary income for a maximum period of 25 years.

Parent PLUS loans aren’t eligible for income-driven plans. So consolidating Parent loans is one way to become eligible for one of the income-based options. ICR offers the fewest benefits of all IDR plans. But it does offer student loan forgiveness if there’s a balance at the end of the repayment plan period.

Depending on your age, to get the most out of your consolidation and ICR, consider delaying your Social Security benefit claims. Sometimes Social Security is counted as income, so your monthly student loan payment is lower by holding off on claiming this benefit.

If you end up with a student loan balance after 25 years, the rest of your loan amount is forgiven. Also, while no one wants to think about it, if you die, your loans are discharged. That’s good news, so your family won’t be saddled with that debt.

Choosing ICR as a payment plan could be a good idea if you’re really struggling to make payments and don’t want to compromise your retirement or your personal finances.

You can also work toward getting Public Service Loan Forgiveness (PSLF) after Parent PLUS consolidation.

In order to be eligible for PSLF, you must be on an IDR plan in addition to working at a nonprofit or government agency on a full-time basis. Applying for a Direct Consolidation Loan can help you access additional repayment plan options that you might not have otherwise.

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The double consolidation Loophole

If you are frustrated about getting left out of President Biden's new repayment plan called SAVE, all hope is not lost.

Buried in his 427 pages of IDR plan regulations, it states that consolidation loans that consolidated loans that consolidated Parent PLUS loans will no longer be eligible for any repayment plan besides ICR starting July 1, 2025.

You can learn more about the elimination of this loophole here, but the short version is that Parent PLUS borrowers must complete a double consolidation before that date to access double consolidation, which means they could access the new SAVE plan with all its benefits.

This is an exceedingly complex process. If you need help, you can work with one of our Parent PLUS student loan experts to create a 1 on 1 plan to access this repayment option.

Parent PLUS loan refinancing

Another option is refinancing your Parent PLUS loans. Through refinancing, you could apply for a new private loan at a lower interest rate. This can save you money over the life of the loan, so you get out of debt faster.

There are several student loan refinancing companies that allow refinancing of Parent PLUS loans. These are private lenders that turn your education loan into private student loans.

Although refinancing helps save money on interest, it’s also a permanent, irreversible move. Once your Parent PLUS loans are refinanced, you’ve given up federal student loan protections like deferment, forbearance, Public Service Loan Forgiveness and ICR eligibility.

Aside from losing generous federal benefits, you must refinancing qualifications. To qualify, you must have a good credit score and credit history, as well as sufficient income to meet monthly payment requirements. Going this route can be useful if you’re focused on paying off student loan debt fast and want to save money.

Just be aware that qualifying for loan forgiveness programs or attractive student loan repayment options like ICR will no longer be on the table. But if you get a lower fixed rate or variable rate, the savings may be substantial.

Refinance Parent PLUS loans in your child’s name

You can also let go of the responsibility of paying back the loans you took out for your child. If they’re willing and able to take on the loan, several refinancing companies let you refinance Parent PLUS loans to your child's name.

Refinancing your Parent PLUS loans this way is good if you want to transfer responsibility and lower your interest rate. It may be beneficial for your child as well, as they can strengthen their credit profile by making on-time monthly payments.  

Obviously, as a disclaimer, you both need to be on board to make it happen. Your child would also need to qualify based on their credit, repayment history, income and employment situation.

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Parent PLUS loan consolidation vs. refinancing

You have two main options to lower your federal student loan payments for Parent PLUS loans.

Parent PLUS consolidation with a Direct Consolidation Loan is helpful in making payments more affordable through either a longer loan repayment term or opting for ICR.

On the other hand, refinancing is good if you want to lower your interest rate, get a new loan servicer, pay off debt fast and aren’t worried about losing any benefits.

Need help deciding on the best approach? Contact us and let a Student Loan Planner® consultant help!

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