Like most parents, you’ll do whatever is necessary to give your child a good education. Unfortunately, by the time you’re researching Parent PLUS loan forgiveness, you’re probably already struggling to repay an existing loan. In hindsight, the loan you took out might not have been as well-thought-out as it should have been. If your payments are cutting into your income more than you expected, you do have options for reducing your payments or the total balance of your loan amount.
The Reality of Parent PLUS Loan Forgiveness
There’s a lot of hype and false information out there about student loan forgiveness in general. If you’ve received phone calls, emails, or letters in the mail promising you an easy way out of student loan debt, you aren’t alone. Due to the student debt crisis in this country, more people are struggling with the financial impact of unpaid loans than ever before. The crisis has also opened the door to all types of scammers looking to profit.
There are some options for loan forgiveness available to students who borrowed money through certain federal loan programs, which aren’t available to parents who have Parent PLUS loans. For example, you can’t qualify for income-based repayment (IBR) or Pay-As-You-Earn Repayment (PAYE) programs. You do have an option for Parent PLUS loan forgiveness if you’re on a standard 10-year repayment plan. The problem is that it requires you to make 120 payments before they will forgive the balance of the loan. Making 120 payments will take 10 years. At that point, there will be little or nothing left to forgive.
You probably need solutions that will help you now, not ten years down the road. One option is to lower your monthly payments. There’s more than one way to accomplish this and one might be better suited to your needs than the others. Consider the details of each option carefully before you act. In some cases, you need to consider your potential finances in the future as well as your current needs.
Changing to a Different Repayment Plan
Graduated – A graduated repayment plan starts low and gradually increases over time. Initially, your payments would be a little above an interest-only payment. This amount would go up every two years, leading to a final payment amount that is no more than three times the initial payment. For example, if the initial payment was $200, the final monthly payment amount can’t exceed $600.
Extended – An extended repayment extends your repayment period to 15, 20, 25, or 30 years, depending on the total amount owed. Paying over a longer period of time allows you to pay less each month. For example, if your previous terms were for $400 over a period of 10 years, extending your payments to 15 years would allow you to pay $267 each month. The greater your loan balance is, the longer the term can be extended and the bigger the difference in how much you pay each month will be.
It‘s important to understand what your payments will be with either plan and how those payments fit in with your needs. The payments stay the same with the extended plan while they continue to increase over time with the graduated plan. Both plans also result in your paying more interest over the duration of the loan.
Refinancing Your Loan
Another option for lowering your payments is to find a private lender to refinance the loan. Private loans usually offer lower payments and lower interest rates than Parent PLUS loans. One thing to watch out for is variable interest rates that change over time. Weigh the benefits of having much lower payments with the potential for an increase in the future.
If you have good credit, refinancing is usually a good option. Sometimes lenders allow parents to refinance the loan out of their own name and into the student’s name, but the student is the one who must make the request. If you opt for one of these refinancing options, it might require you to cosign. The cosigner release relieves you of your obligation after making so many payments on time.
You took out a Parent PLUS loan to help your child in the first place. You might not want to shift the burden to your child now that they’re just getting started in their new career. On the other hand, if their career is off to a successful start and you are struggling, refinancing the loan into their name might be a reasonable solution. If their credit rating is stronger than yours, they are in a position to get a lower interest rate. Some popular lenders that give you this option include LendKey, CommonBond, SoFi, Laurel Road, and Earnest.
Once your child applies for and receives student loan refinancing, the loan becomes private rather than federal. They will lose any protections offered under federal programs like income-driven repayment, forbearance, or deferment. They will also lose access to forgiveness programs like PSLF. If you need to hold on to these protections, refinancing probably isn’t the best choice for you. If getting better interest rates and repayment terms is your priority, it might be a good option.
Applying for Deferment or Forbearance
Forbearance and deferment are options for Parent PLUS loans just as they are on other types of federal loans. But these are only temporary measures that allow you a certain amount of time to stop making payments on your loan.
If you are struggling to make hefty payments every month, with no reason to believe the situation will get easier in the future, forbearance or deferment probably won’t help. If you’re going through a temporary situation for the short-term, it might buy you the time you need. Both options are temporary and you will have to resume making your regular payments according to the terms of your agreement. They are not methods of Parent PLUS loan forgiveness. Make sure you know the difference between forbearance and deferment before you apply.
Student Loan Cancelation and Discharge Programs
Some reasons a student loan might get canceled or discharged are:
- Your school closes
- You failed to receive payment for a refund of your loan
- False certification of the loan
- Death and disability (tax-free since 2018)
A cancelation or discharge isn’t the same as Parent Plus loan forgiveness. Although the balance of your student loan debt is discharged or canceled, it is still considered taxable income. But paying taxes on any loan amount is much more affordable than continuing to pay the full amount of your regular payments. If you get a cancelation or discharge, plan ahead to pay the taxes on your balance and put your student loan debt behind you.
Income-Contingent Repayment (ICR) Workaround
As mentioned earlier in this article, Income-Contingent Repayment (ICR) and Pay-As-You-Earn Repayment (PAYE) aren’t offered to Parent PLUS borrowers. But when you convert your Parent PLUS loan into a Federal Direct Consolidation Loan, you can qualify for ICR as well as Public Service Loan Forgiveness (PSLF).
ICR is an income-based repayment plan that can reduce your payments according to your income. On the plan, you pay no more than 20% of your discretionary income for a period of 25 years. At the end of the payment period, the remaining balance is discharged. ICR isn’t as generous as IBR and PAYE, but you don’t have to meet income requirements to qualify.
Another advantage of converting to ICR is that you spread your payments across a longer time period. You pay less each month so it’s less of a burden on you now.
In addition to ICR, you might qualify for Public Service Loan Forgiveness (PSLF). This program allows you to have your debt forgiven in 10 years, or after 120 monthly payments. Combining the two programs can result in you saving even more on your student loan debt. But it isn’t offered to everyone.
PSLF is an option for parents who work full-time for certain government entities or nonprofits. If you do qualify, you must make timely payments for 10 years before having your loans forgiven. One advantage of PSLF over ICR is that your forgiven loans aren’t considered taxable income.
You can’t directly convert your Parent PLUS loan into an ICR. First, you must consolidate it with a Direct Consolidation Loan. That’s why it’s called a workaround.
Most people know that loan consolidation means combining multiple loans to lower their overall monthly payment. It’s different from Parent PLUS loans. If you have just one loan, you can still apply for student loan consolidation. Consolidating into a Federal Direct Consolidation Loan gives you more options to reduce your payments and it may lead to Parent Plus loan forgiveness.
Here’s how to apply…
Step 1: Apply at StudentLoans.gov for a Direct Consolidation Loan. Before you apply, read the pros and cons of converting your loan. Although the process does make you eligible for some benefits, it also eliminates some other options.
Step 2: Talk to your loan servicer about switching to an ICR plan. If you think you might qualify for PSLF, ask them about that as well.
Step 3: Keep up with all your monthly payments. Keep your tax bills paid and up-to-date. Failing to make even one payment could cost you a lot of money and hurt your chances for Parent PLUS loan forgiveness. It’s going to take a long time to reach the end of the program. Hopefully, lower payments and a bright outcome at the end will help you stay with the program.
Some Student Loan Statistics to Consider
Most of us think of someone in student loan debt as being a young graduate who is just starting their career. For those who do fit in this category, the student debt crisis is impacting their ability to make major purchases like houses or cars. But they aren’t actually the group that’s facing the highest level of debt.
Those between 35 and 49 years of age lead the way with $548.4 billion in school loan debt. What’s worse is that many Americans continue to pay student loan debt after retirement. To date, borrowers aged 62 years and older account for $67.8 billion in student loan debt. In most of these cases, they’re taking out loans or cosigning for their children or grandchildren to go to college. When you consider the age of a parent who obtains a Parent PLUS loan and the 25-year repayment plan that comes with it, it’s almost a guarantee that you’ll be over 62 before you pay off your balance.
Delinquency is another growing issue. More people with student loans are delinquent due to an inability to meet their monthly payments. When it comes down to paying their loans or buying food to put on the table, there really isn’t a choice. The likeliness of delinquency on student loan debt has grown so high that it now surpasses that of delinquency for credit cards or auto loans.
What is fueling the student loan crisis? It costs more for students to go to college today than it did for their parents. The cost of tuition and related expenses means borrowing more money, either by the student or their parents. There are also the problems of predatory lenders and scammers who use the situation to get more money for themselves.
Ironfist Legal – Real Solutions for Real People
Parent PLUS loan forgiveness is possible – but it takes time and effort on the part of the borrower. Twenty-five years, or even ten, is a long time to meet your monthly obligation without faltering. Loan payments can interfere with other financial obligations you have in your life and even get in the way of your retirement.
Parents want to do their best for their children, including giving them a good start in life. That doesn’t mean you should accept your circumstances, especially when a problem interferes with every other area of your life.
Contact Iron Fist Legal to see if you are eligible for a loan modification. If you have more than $30,000 in student loan debt and meet the eligibility requirements, you can get a reduction of 30% to 70% off your debt, guaranteed. Under some circumstances, you might even get total Parent PLUS loan forgiveness. Schedule a complimentary consultation and take control of your student loan debt today.