How to break free from debt caused by parent PLUS loans

Learn about Parent loans,efficiently making repayments by choosing repayment plans, refinancing and consolidation, loan forgiveness for parent PLUS loans

Updated by Aparna A on 23rd July 2020

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Parent PLUS loans are comparatively different from the other federal loans. Parents aiming to help their kids finish their education can sometimes find themselves stressing with financial burdens. Studies reveal that tuition fees are escalating higher in the past two decades in the U.S. In such cases, it is important to check and apply for grants, scholarships, tax benefits and any other form of financial aid provided by the government. It is also vital to understand that completing the student loan payments before your retirement can help you have a better lifestyle thereafter.

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Parent PLUS loans

Student loan debts are rapidly increasing among older parents. The Consumer Financial Protection Bureau says the student loan borrowers fall between the age length of 20 to 40. But there is an increasing number of parent loan borrowers who age from 60 and above taking loans on behalf of their kids either directly or in the form of a cosigner. Borrowing loans when nearing your retirement can cause you tremendously financial distress as there is an obligation to repay them faster. If you find yourself in such a situation, please check for a suitable repayment option, loan forgiveness programs, and other financial aid schemes that can be favorable. Parents PLUS loans are applied directly using the FAFSA. These loans are a type of direct PLUS loan provided by the U.S Department of education to parents seeking loans for their children. But these loans come with a few drawbacks to them. Parent PLUS loans do not have grace periods. Once the loans are disbursed, the repayments start immediately. There is no time-space to manage the finances. But you can apply for deferment, so that six months period is given after the student graduates. Also, these loans have higher interest rates compared to the other federal loans increasing the hardships. If your loans fall into delinquent or default, the government will limit your social security benefits and stop your wages. Parent PLUS loans are not based on income, therefore you can borrow large amounts of money compared to other federal loans. This can risk you borrowing more than actually needed. Also, these loans are not subsidized increasing the risk of accumulation of interest on the principal value. 

There are cases, where complaints were received by the parent loan borrowers against their service providers. So it is important to keep in touch with your service providers to check the relief programs and other offers provided at the time of emergencies. Once your loans are approved by the federal government, they also assign you to a service provider who will manage your bills and payments. They keep you in check with your payments, the time to make payments, and also the amount and changes (if any). The government advises you to contact your provider who can help you with repayment options, loan forgiveness, and other benefits you can take advantage of.


Repayment plans to consider


Repayment plans must be taken according to your financial circumstances. There are chances, by choosing the right repayment plans you can pay the loans much faster. To save money on your interest rates you can always pay your loans sooner.

The types of repayment plans as discussed below :

  • Standard repayment plan

  • Graduated repayment plan

  • Extended repayment plans

  • REPAYE

  • IBR

  • ICR

  • Income sensitive repayment plan


Standard repayment plan: Helps pay loans faster.

The timespan for payment - 10 years (10-30 years for consolidated loans)
Types of loans eligible :
Direct Subsidized and Unsubsidized Loans
all PLUS loans
all Consolidation Loans (Direct or FFEL)
Subsidized and Unsubsidized Federal Stafford Loans

Graduated Repayment Plan: Helps user with low monthly income but their income increases gradually over time.

The timespan for payment - 10 years (10-30 years for consolidated loans)
Types of loans eligible :
Direct Subsidized and Unsubsidized Loans
all PLUS loans
all Consolidation Loans (Direct or FFEL)
Subsidized and Unsubsidized Federal Stafford Loans

Extended Repayment Plans: An income-driven repayment plan

The timespan for payment - 25 years
Types of loans eligible :
Direct Subsidized and Unsubsidized Loans
all PLUS loans
all Consolidation Loans (Direct or FFEL)
Subsidized and Unsubsidized Federal Stafford Loans

REPAYE: 

The timespan for payment - 20 years
Types of loans eligible :
Direct Subsidized and Unsubsidized Loans
Consolidation Loans not including PLUS loans (Direct or FFEL)
Direct PLUS loans

IBR:

The timespan for payment - 20-25 years
Types of loans eligible :
Direct Subsidized and Unsubsidized Loans
all PLUS loans
all Consolidation Loans (Direct or FFEL)
Subsidized and Unsubsidized Federal Stafford Loans

ICR:

The timespan for payment - 25 years
Types of loans eligible :
Direct Subsidized and Unsubsidized Loans
Consolidation Loans not including PLUS loans (Direct or FFEL)
Direct PLUS loans

Income-Sensitive Repayment Plan:

The timespan for payment - 15 years
Types of loans eligible :
feel PLUS and consolidation loans
Subsidized and Unsubsidized Federal Stafford Loans


Refinancing and consolidation process for parent PLUS loans

If you find it difficult to cope up with the payments for your loans. You can refinance your loans in your child's name once he or she owns a job to make the repayments. If you have good credit scores and qualifying income refinancing parents plus loans can help in decreasing the interest and can help you save money. Both federal and private loans can be refinanced. ICR repayment helps you pay based on 20 percent of your discretionary income, residence, and the number of people in the family, for about 12 years which can also be stretched out for 25 years. ICR plan is eligible for loan forgiveness too. PLUS loans cannot be directly paid in the ICR plan, so you can consolidate and make payments under ICR. Consolidating loans can help in reducing the monthly payments drastically though interest fees increase as years of payments also stretch. Consolidating loans can help in efficiently managing your repayments and also you can take advantage of programs like the income-based payment plan programs and loan forgiveness offered by the federal government.


Loan forgiveness for parent PLUS loans

To be eligible for loan forgiveness, consolidate your loans to direct consolidation to apply for PSLF if you are a public servant. If you work along in the public sector that provides fewer payments, you are eligible to apply for PSLF. After making 120 monthly repayments being a full-time employee in the public sector, the remaining balance for repayment is forgiven. In cases of death, bankruptcy, disability for a lifetime, loans are canceled or discharged. This is applicable to federal loans. Applying for deferment and forbearance can help you stop making payments temporarily in case of a financial crisis. You can consider these options to manage your payments well before retirement.