Parent Plus Loan Forgiveness: How It Works [Detailed Guide]

parent plus loan forgiveness

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Student loan forgiveness is also available to parents, not only students. But they will have to meet certain lender requirements. So parents struggling to pay back their debts can opt for Parent plus loan forgiveness

Besides that, Parent PLUS loans it’s a good alternative to private student loans. And that’s because they offer more flexible repayment options for Parent PLUS loans. 

However, Parent PLUS loans can be more expensive than other options. And there are severe consequences for default. 

This guide will explore what you need to know about Parent Plus loan forgiveness. 

With that said, let’s begin. 

1. Parent Plus Loan Forgiveness 2022

Congressman Donald Norcross and Senator Bob Menendez have proposed the Second Chance At Public Service Loan Forgiveness Act. The purpose is to remedy the PSLF’s problems.  

The newly proposed legislation includes these provisions, among others:

  • Grant Parent PLUS Loan Forgiveness 
  • Allow those who served in government before 2007 and have student loan debts to be eligible for loan forgiveness.
  • Remove the 120-payment requirement and replace it with a ten-year commitment to working in the public sector.
  • Extend until October 31, 2022, the present limited waiver for student loan forgiveness
  • Permit teachers to simultaneously be eligible for the PSLF Program and the Teacher Loan Forgiveness Program.

Who Is Responsible For Paying Back A Parent PLUS Loan? 

Parent PLUS loan repayment is legally the responsibility of the Parent who obtained the loan in their name. After all, they chose to borrow the money for their child and committed to paying it back.

Applying to have the debt refinanced into the child’s name is the only method to get the Parent out of the loan. Several private lenders, such as SoFi and CommonBond, can help make this possible.

This is an excellent option, but only if the child is prepared to assume the debt. And they’re able to make monthly student loan payments on schedule easily. 

The student must also be able to satisfy the loan refinancing requirements on their own. That means they must have a high credit score and steady income.

Furthermore, when a parent PLUS loan is refinanced with a private lender, it becomes private and loses its eligibility for federal programs. Therefore, refinancing is generally not the best action if the Parent wants to keep the government protections.

Do Parent PLUS Loans Have To Be Paid Back Immediately? 

Parent PLUS loans must be paid back immediately unless it’s in deferment. You must repay your Parent PLUS loan as soon as the U.S. Education Department disburses the loan.

You must make your first payment within 60 days of the Parent PLUS loan’s final payout. For each college semester, federal student loans typically have two disbursements. So you would start repaying PLUS loans as summer approaches.

Let’s say your child is enrolled at least half-time at a qualified school. In such a case, you have the option to postpone making parent PLUS loan payments. 

The loan deferment continues for another six months after your child graduates. It’s similar to the grace period for other undergraduate student loans. 

What Is The Fastest Way To Pay Off A Parent PLUS Loan?

parent plus loan forgiveness 

The best way to repay a Parent PLUS Loan faster is to pay more than the required minimum every month. You can actually use this strategy for every other loan. 

Also, refinancing with a private lender can help you pay off your debts more quickly. Refinancing can help you pay off your debts quicker and even save money if: 

  • You acquire a lower rate on a high-interest PLUS loan, 
  • You choose a shorter payback term or do both.

However, refinancing isn’t for everyone, especially those with bad credit and borrowers who don’t want to give up federal loan protection. 

If refinancing is not an option, there are ways to pay down Parent PLUS loans more quickly. 

What Happens To Parent PLUS Loans If A Parent Dies? 

The following possibilities occur if a parent passes away after taking out a Parent PLUS Loan without repaying:

The Loan Gets Discharged, But Not Before Some Lengthy Paperwork 

When a parent whose name is on the loan passes away, the loan is automatically canceled. But a family member or designated family trustee must contact the student loan servicer and provide evidence of the borrower’s death. 

A certified copy of a death certificate, an original death certificate, or a high-resolution photocopy of a death certificate is all acceptable to student loan lenders.

Families can obtain death certificates directly from the state or the funeral home that handles the funeral arrangements.

The Loan May Not Be Canceled If It’s Refinanced Into A Private Loan 

The conditions of a Parent PLUS Loan may vary dramatically if a parent chooses to refinance it to achieve a cheaper student loan interest rate

You might be able to reduce your monthly payment depending on the length of your new term. However, you might not be eligible for the death discharge if you refinance to a private lender. If this worries you, be sure to check with your new lender.

Can Parent PLUS Loans Be Forgiven?

Yes. There are limited ways to get Parent PLUS loan forgiveness. But that will depend on your income and line of work. 

For example, you can only use the ICR plan to seek Parent PLUS loan forgiveness. You must first combine your PLUS loans into a Direct Consolidation Loan before using this repayment option to pay off the loan.

You must choose between paying 20% of your discretionary income, adjusted according to your income, to participate in the ICR program. 

Also, using the ICR plan is the only way for parents to apply for Public Service Loan Forgiveness for their PLUS loans. So yes, you can get Parent PLUS loan forgiveness. 

Do Parent PLUS Loans Qualify For Loan Forgiveness?

Yes. An ICR plan or the PSLF program may be available to forgive a parent PLUS loan. For parents who borrow money from private lenders, there are additional options.

Unsubsidized federal direct loans are what Parent PLUS loans are. So interest builds up on the loans because they are not subsidized while the student is still in education.

Some parents take on more debt than they can manage to pay back. Parents can now borrow the entire cost of a college education thanks to a 2013 federal policy change that lifted the annual and lifetime borrowing caps from Parent PLUS loans.

Do Parent PLUS Loans Qualify For PSLF?parent plus loan forgiveness

Yes. After making 120 qualifying payments (10 years), you can qualify for PSLF.

Parent PLUS loans that are part of a Direct Loan program and the Federal Direct Consolidation Loan are both eligible. In addition, you must hold a position in the public sector that qualifies full-time.

Standard Repayment And IDR Plans Both Qualifies

Income-driven repayment and standard repayment and programs are examples of eligible repayment strategies. For example, if borrowers pay off their loans using the standard ten-year repayment plan, nothing will be left to forgive. 

So, to qualify for Parent PLUS loan forgiveness under the PSLF program, you must repay your student loans according to an IDR plan.

If you consolidate your Parent PLUS loans into a Federal Direct Consolidation Loan, you can qualify for an income-based repayment plan.

Another Option Is The TEPSLF Program

The Consolidated Appropriations Act of 2018 established the TEPSLF program as an alternative. 

Suppose some or all of the 120 required payments were made through a graduated or extended repayment plan. 

And the final year of payments was at least equal to what you would have paid under an IDR plan. So when the Direct Consolidation loan pays off the PLUS loan, it qualifies for TEPSLF. 

2. Student Loan Forgiveness For Parent PLUS Loans

Parent PLUS loan forgiveness reduces your repayment requirements, much as other types of student loan forgiveness. If you meet specific criteria, you can stop paying your debt and have the remaining balance forgiven.

To be eligible for loan forgiveness, parents must meet their requirements, not those of the child for whom they took out the loans.

For instance, let’s say a borrower who works for a government or nonprofit organization. This borrower can qualify for Parent PLUS loan forgiveness under the PSLF program after a certain period. 

The Parent, not the student, must work in a qualifying job to qualify for the Parent PLUS loan forgiveness.

Parent PLUS loan forgiveness frequently requires actively determining your eligibility and applying. But occasionally, the government might contact you to tell you if you qualify for a forgiveness program.

Are Parent PLUS Loans Considered Student Loans?

Parent PLUS loans are a form of federal student aid for families with dependent undergraduates. Parents commonly take out PLUS loans once their child has borrowed the maximum allowed under federal student loan programs. 

Unsubsidized federal direct loans are what make up a PLUS loan for parents. Interest continues to build up even when a student is enrolled in school if the loan is not federally subsidized.

Will Parent PLUS Loans Be Included In Student Loan Forgiveness? 

Would student loan forgiveness include Parent PLUS loans? That’s the question many people ask. But the answer isn’t quite straightforward. 

Reporters asked Biden whether he considered canceling up to $50,000 in student debt. He said he said no. But multiple sources confirmed to The Hill that Biden was considering writing off at least $10,000 for each loan.

Additional details of widespread federal loan forgiveness have not been released. However, sources have hinted that debt relief could be restricted based on loan type or income level.

President Biden told reporters that he would decide on whether or not to cancel student loans by the end of August.

So, who will and will not be granted student loan forgiveness for Parent PLUS loans is unclear. But there are ways you can apply, such as the PSLF and the ICR plan. 

Can Parent PLUS Loans Be Transferred To The Student?

You can’t transfer your Parent PLUS loan to your child through any federal loan program. And it’s technically not possible to transfer the loans even through private lenders. 

However, some private lenders permit the student to obtain a refinanced student loan and use it to settle their Parent’s PLUS loan.

You might agree with the student if they haven’t refinanced, whereby they will give you the funds to make the payments. 

However, if your child already owes a lot in student loans, they might not be able to pay off their debt to you while still meeting their other responsibilities. Situations are different.

How To Transfer Parent PLUS Loans To Your Child 

parent plus loan forgiveness

You’ll first need to look around for lenders who provide this option to transfer a Parent PLUS loan to your child. Some lenders, but not all, will refinance them for you.

Eligibility and interest rates will change depending on the lender. To locate a lender whose lending requirements are for your situation, your child can pre-qualify with several of them without having this harm their credit. 

They will apply directly to that lender after locating the best interest rate.

Your child will typically need: 

  • a credit score of at least 690, 
  • a track record of repaying loans, and enough income to comfortably handle the payments to be eligible. 

They could need a few years after graduation to attain these financial goals. However, your child will save the most money if they refinance as soon as possible.

3.Repayment Options For Parent Plus Loans

1. Graduated Repayment Plan 

Your monthly payments under the graduated repayment plan begin lower, a bit above interest-only payments, and gradually rise every two years. The payments should be more than three times other monthly payments.

The loan balance and whether or not the loans are consolidated determine the repayment period. The repayment terms can be from ten to 25 years. 

2. Standard Repayment Plan

You’ll make the same monthly payments for ten years with standard repayment. It’s the repayment plan with the highest monthly payments. But, it also has the lowest total payments over the loan’s lifetime, saving you money.

Additionally, after ten years, you’ll have repaid all of your Parent PLUS loans. So, you should generally try to pay off your debts before retiring. 

You can repay the loans in 10 years or less if your child’s combined Parent PLUS loans are less than your yearly salary.

Other repayment options for Parent PLUS loans can have cheaper monthly payments. But they’ll take longer and cost more overall. So it’s ideal to go for this option if you can afford the monthly payment. 

3. Extended Repayment Plan 

Level amortization is used in both extended and standard repayment plans. But the former has a longer repayment period. 

Extended repayment comes in two different types.

The loan balance determines the repayment period if you have consolidated your federal loans.

Extended repayment will result in cheaper monthly loan payments than standard repayment but a higher overall interest cost.

4. Income-Contingent Repayment Plan

Consider an ICR plan if you need lower parent PLUS loan payments and want to continue using the federal Direct Loan program.

Your monthly payment under an ICR Plan is 20 percent of your discretionary income. Or an income-adjustment amount calculated as the sum of what you would pay over 12 years under a fixed payment plan. 

The annual recertification of your income and family size will determine whether your monthly payments go up or down.

You Can’t Pay Back a PLUS Loan Under ICR Plan

However, under the ICR Plan, you can’t make a parent PLUS loan repayment. You must first combine Parent PLUS loans into a Direct Consolidation Loan to be qualified for the ICR Plan. 

The ICR Plan can then be used to repay the newly combined loan.

Income-driven repayment programs, like ICR, have the unique advantage of forgiving any outstanding debt after the repayment period.

5. Public Service Loan Forgiveness

PSLF is the best option for Parent PLUS loan forgiveness.

This program allows government workers and nonprofit organizations to have their loans forgiven after making 120 monthly payments. In addition, the forgiven sum won’t be taxed, unlike with the ICR plan.

Before applying for PSLF, ensure you fully understand the process because there are a lot of criteria and requirements. For instance, Parent PLUS loans must be paid off by the Parent. And it doesn’t matter whether the student is employed or not.

Consolidate your Parent PLUS loans if you want to seek PSLF and change to the income-based repayment option. If not, there might not be a balance remaining to be forgiven after 120 payments.

6. Refinance Your Loan Into A Private Loan

Refinancing your PLUS loans into a private student loan, private parent loan, or a non-education loan is an additional option. Again, you can be eligible for a cheaper interest rate if your credit score is good. 

However, since the loan will no longer be a federal loan after you refinance it, you’ll forfeit other benefits and the federal repayment options for Parent PLUS Loans.

Although some borrowers might find this a suitable option, it won’t always result in cost savings for you.

Refinancing federal student loans entails giving up several benefits, including any government forgiveness programs and deferment options.

7. Bankruptcy 

In most cases, you can’t discharge your student loans into bankruptcy. But there is a slight chance that you might be able to. You must file for Chapter 7 or Chapter 11 bankruptcy to be eligible.

You must prove that making payments would put you and your dependents through undue hardship.

 According to the Federal Student Aid website, several things can happen if the courts determine that your payments will cause undue hardship. Let’s go through them.

  • You may still be obliged to repay a portion of your loan even after it has been partially discharged.
  • If your loan is discharged, you won’t be required to make further payments. Therefore, there will be no further collection activity.
  • Your loan may need to be repaid under other conditions, such as a reduced interest rate.

Applying for bankruptcy costs several hundred dollars and will harm your credit for seven to ten years. 

However, it’s better to seek student loan forgiveness for Parent PLUS loans. But before making this crucial decision, seek expert advice and weigh the advantages and disadvantages.

4. Parent Plus Loan Cancellation

According to the Federal Student Aid Office, Parent PLUS loans can be canceled if a parent:

The loans can also be discharged if the student: 

  • Doesn’t finish their program from the university closed down, 
  • Passes away, 
  • Withdraws from school, the school doesn’t reimburse the parents for their loan funds. 

As discussed earlier, you can also qualify for the ICR plan. But to do that, you’ll have to consolidate the PLUS loans into a Direct Consolidation Loan before using this repayment option.

Will Parent Plus Loans Be Canceled?

parent plus loan forgiveness

Since Biden became president, he’s canceled billions of student loan debts. But ultimately, it’s soon to know if the Biden administration is considering Parent PLUS loan cancellation. So if you’re asking, “would student loan forgiveness include Parent PLUS loans,” there are options for Parent PLUS loan cancellation.

Let’s go through some of them. 

Parent PLUS Loan Cancellation Options 

The Federal Agencies

Federal agencies can pay back federal education loans to attract and retain employees. Fortunately, that includes Parent PLUS loans. But that also means you have to be a Parent PLUS loan borrower. 

Remember that the Parent will have to work for the federal agency, not the student. 

State Loan Forgiveness 

If you relocate to a state or certain towns or counties inside, many states provide help with repaying student loans. In addition, private parent loans, as well as Parent PLUS loans, may be eligible.

Military Loan Forgiveness Programs

Depending on the military service, Parent PLUS loans may qualify for repayment under one of the many loan forgiveness programs. However, loan forgiveness might only apply to Parent PLUS loans that are taken out on a student who is also a Service member. 

Private parent loans don’t qualify. 

Employer-Paid Loan Assistance

Parent PLUS loans qualify for numerous employer-paid assistance programs. This includes private parent loans and Parent PLUS loans. 

So if you want Parent PLUS loan cancellation, consider the options above. One may work for you. 

5. Parent PLUS Loan Forgiveness Retirement 

When you retire, your Parent PLUS loans are not automatically canceled. Likewise, student loans are not canceled at 65 or when you begin receiving Social Security benefits. Only those eligible for loan forgiveness programs can have their student loans canceled.

Even after you retire and your income drops, you’ll still be responsible for paying back Parent PLUS Loans until that time. That can be difficult because you’ll probably live on a fixed salary. 

You can take steps to prepare for the change in your finances. That way, you can enjoy your retirement years without worrying about Parent PLUS Loans.

Parent PLUS Loan Forgiveness Retirement: What To Do In Retirement 

If you’re still paying off loans after retirement, switching from a standard to an extended repayment plan will lower your monthly payment. As a result, your monthly expenses could be cut, and your cash flow could be improved.

However, when you reach the end of 20 or 25 years and still owe money, there is sadly no Parent PLUS loan forgiveness available. You must continue to pay down the debt instead.

Use a Direct Consolidation loan with your Parent PLUS loan as another alternative if you’re worried about your retirement income. You might then be qualified for an income-driven repayment plan.

If your retirement income is eligible for that plan, you might experience bigger monthly payment savings. However, your balance may increase over time, and the interest may still accumulate.

Refinance Your PLUS Loans Before Going For Retirement 

Parent PLUS loan forgiveness retirement plan might not work for you. But refinancing your loans earlier is another option.

You can pay an interest rate of up to 8.5%, depending on when the loans were given. You might be able to lower your payment. And you can divert that money toward your retirement savings if you refinance the Parent PLUS loan before you retire.

You might be able to change the length of your student loan repayment when you refinance. For example, you might reduce your monthly payment amount and put any extra money toward your retirement savings by extending the repayment term.

It’s crucial to remember that you’ll lose access to federal loan protections if you refinance with a private lender. However, you might also lower your monthly payment and save money on interest.

Parent PLUS Loan Forgiveness Retirement: Refinance To Your Child’s Name

Depending on the circumstances, you might also be eligible to transfer your Parent PLUS loan into your child’s name. In addition, some lenders permit you to transfer the Parent PLUS loan to your child. 

If you refinance to your child, the debt is no longer your responsibility; instead, it’s theirs. However, your child will need a credit history and a steady source of income to refinance the Parent PLUS loan. 

A lender will examine your child’s information and decide if they qualify for the loan. 

If your student can assume their student loan debt, you’ll be able to contribute more to your retirement funds. And that can potentially lessen the strain on your finances once you retire.

You might also ask your student to make a monthly contribution to lessen your load if they can’t handle the transfer to their name.

Parent PLUS Loan Retirement: Plan Now Before Retirement

You must begin planning now because Parent PLUS loans are not forgiven in retirement. But you can still get student loan forgiveness for Parent PLUS loans before you retire. 

Consider carefully whether consolidating or refinancing a Parent PLUS loan could be your best action. Whether you’re close to retirement or have a few more years to go, it doesn’t matter.

If you can decrease your monthly payments and invest, you can improve your cash flow. That way, your debt won’t be as much as it is now. 

Conclusion

Would student loan forgiveness include Parent PLUS loans? Maybe, maybe not. But you have other options. Parent Plus loan forgiveness is an excellent way for parents who have taken out loans to help their children pay for college. In addition, Parent PLUS loans can help your child finish their education. But seeking loan forgiveness can be tricky. If it’s complicated for you, seek a financial expert’s help. They can help you take the right action and reduce or pay off all your debt. 

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