Every parent would love to give their child a bright future so they can always consider the option of Parent PLUS Loan. In today's time, education cost is quite high so in this case, Parent PLUS Loan becomes a great deal for parents.
If it becomes difficult to pay those loans in the future there are some options that can give relief towards your debt. Borrowers can take the route of Parent PLUS loan forgiveness and forget about Loan worries as a borrower.
Think before you consider the option of Parent PLUS Loans because your child is going to get the burden for repayment. He/she will be at the beginning of their career and you might be winding up yours when the repayment hits. So always do your research before you go for any student loan.
List of contents
- What is Parent PLUS Loan Forgiveness?
- Income Contingent Repayment for Parent PLUS Loan
- Ways to get Parent PLUS Loan Forgiveness
- Repayment Options
- Drawbacks for Parent PLUS loan Refinancing
Income Contingent Repayment for Parent PLUS Loan
There are four main Income-Driven Repayment (IDR) plans one of them is Income Contingent Repayment (ICR). Under Parent PLUS loans, only ICR qualifies for forgiveness.
This plan will cap 20% of your discretionary income or the fixed monthly payment amount will be on the bases of 12 years term, whichever is lower. The loan term can be extended from 10 years to 25 years.
To apply for the ICR you need to go through loan consolidation. Your PLUS loans should be consolidated under the Federal Direct Consolidation Loan Program. Then you need to involve your loan servicer and inform them. You should always consult your student loan servicer.
The loan servicer will show you the right way and advice you for the best choice in your interest. You need to apply every year to update your financial situation which might affect your monthly payments.
The remainder of your loan will be forgiven after 25 years of repayment and that amount will be considered as your taxable income.
With ICR borrower's 20% discretionary income will be considered for the loan payments. Your discretionary income is the difference between the minimum level based on the federal poverty guideline for your state and family size and your net income.
Ways to get Parent PLUS Loan Forgiveness
1 - Direct Consolidation Loan
The Direct Consolidation loan is nothing but gathering all the loans under one roof which gives you a single monthly payment. It will help you pay your loans smoothly.
Consolidation depends on which type of loans you have. If you have federal loans then, this is the wise option for you to choose.
So, all the Federal loans will be converted into single Direct Consolidation loan but it is necessary to know about the interest rates because they might be high or low.
Rates will be calculated by considering the average of the interest rate on your current loan and rounding up to the nearest one-eighth of 1%, this will be your fixed rate for the life of the loan.
2 - Public Service Loan Forgiveness Program (PSLF)
Another option is to consider is Public Service Loan Forgiveness which takes less time than ICR.
Parents who are engaged or working full time for government entities or nonprofits and timely paying their loans for 10 years they loans will be forgiven under PSLF.
Under PSLF, Federal student loans will be canceled, once you make 120 qualifying payments. However, there are some criteria which you need to fulfill.
Borrowers need to be on an income-driven repayment plan to be eligible for PSLF this way just like ICR Direct Consolidation of loan is necessary. After this, you need to apply for ICR and once ICR is approved then you can submit your PSLF Employment Certification Form.
You can qualify for PSLF if you are working with -
1. Government Organization at any level (federal, state, local, or tribal)
2. Non-Profit in Public Services.
3. Non-Profit 501(c)(3) (under this).
Public safety, or law enforcement services
Public health services, public education or public library services
School library and other school-based services
Public interest law services
Early childhood education
Public service for individuals with disabilities and the elderly.
Repayment options for Parent PLUS Loan Forgiveness
Other than ICR and PSLF there are also different ways to repay Parent PLUS loan. These types of options will help you lessen your loan burden more.
For example, there is one option where you can transfer your loan to your child. As parents, you might have a concern about your savings, so check out the options which will give you a fair amount of information regarding interest rates, refinancing options with private lenders, and more, for Parent PLUS Loan Repayment.
1 - Regular Parent PLUS Loan Repayment
This repayment plan comes along with the Parent PLUS Loan repayment. You will automatically be enrolled in this. Under this plan, you need to make a fixed monthly payment for 10 years. If you can afford to make the monthly payment then this is the best repayment option but if you can't afford then you should look for other options.
It is always good to check other graduate repayment and extended repayment plans but they are not preferable to ICR or other options. For example, extended repayment will build more time and interest in the total payment. Your interest will be high, though the monthly payment is low.
2 -Transferring your Parent PLUS Loans to your child
Instead of considering ICR or PSLF the option you should see on the other side where you can transfer your loans to your child. You can trade this option with the help of student loan refinancing.
For this, your child needs to apply for student loan refinancing and it should be approved under particular criteria. Applicants need to have a decent credit score to fall under the eligibility for student loan refinancing. So your child should have a decent income to repay your Parent PLUS Loans.
If everything goes good he/she will be offered a lower interest rate than 7% under this plan. Borrowers also have the freedom to choose their repayment terms either it can be shorter or longer in length.
You might be considering this option as a fair deal as now your child can pay for their own loans, as they are graduate and now have a decent income but this option makes your federal loan into a private one. Because of this, your child will lose all the federal protection like forbearance income-driven repayment plans and PSLF. If you love federal protection then you should go for standard refinancing.
Pros of transferring the loan to the student
If you transfer your student loan to your child then you will be debt-free and now you can use that amount towards your retirement plan and make it financially secure.
Depend on the scenario, your child can receive a lower interest rate and monthly payment. The interest rate on Parent PLUS Loans is 7% currently which is quite higher than federal student loan as the refinancing rate is lower to 2.74% So transferring the Parent PLUS Loans to your child would be the wise decision.
Cons of transferring the loan to your child
After transferring the Parent PLUS Loan the process cannot be reversed now your child is responsible for the student loan. Keep them updated with all the loan details you have from interest rates to monthly payment.
It will be difficult for your child to take that burden on his/her shoulder if they have just recently finished their education. So transferring the loan won't be that wise decision. However, you can wait for your child to earn decent enough to pay the loan amount and interest then transferring the Parent PLUS loans will be advisable.
3 - Refinancing your Parent PLUS Loans with private lenders
If you're having difficulties to pay your Parent PLUS loans then start researching for Private Lenders for your refinancing options. Usually, parents as borrowers have longer credit history than student borrowers so lenders will have more information about you when they give you a quote.
If you have a high credit score or by chance, it went up because you took the Parent PLUS Loan, you will end up having fewer interest rates with refinancing. So lower interest won't pinch your pocket much.
As you enter the world of private student loan provider, you will lose all the federal loan forgiveness options. So do your research, make some inquiries and then apply for refinancing your Parent PLUS Loans.
Still confused? Learn more about student loan refinancing
Drawbacks for Parent PLUS Loan Refinancing
The only drawback with Parent PLUS loan forgiveness is that it takes a lot of time. You need to consolidate your loans then sign up for ICR and pay for 25 years or work in public service for 10 years.
If you think that this is not for you and its gonna exceed your financial burden than you should not apply for it. Keep your existing plan in progress.
You might try to get another income source or ask for help from your employer for loan assistance.