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Updated on December 21, 2022
Parents who borrowed money to pay for their child’s college costs might be eligible for Covid-19 related payment and forgiveness help from the U.S. Department of Education, depending on the type of Parent PLUS Loans they have.
All federal student loan borrowers are eligible for some debt relief opportunities. But parent borrowers often face more eligibility requirements.
For example, people with Parent PLUS Loans must consolidate their debt into a Direct Consolidation Loan to take advantage of the Public Service Loan Forgiveness Program. The same is required if they wish to qualify for income-driven repayment plan forgiveness.
One loan forgiveness program was off-limits to parent borrowers, with few exceptions. While the department wrote off billions of debt for teachers, nurses, veterans, and other public servants, parents who held jobs in the public sector were blocked from taking advantage of the PSLF Waiver.
Learn more about the different student loan forgiveness programs you can use to get rid of your Parent PLUS Loan debt before the coronavirus forbearance ends.
Parents of about 3.6 million students owe over $107 billion in Parent PLUS Loans as of March 2022, according to the latest data from the Education Department. That represents about 6% of the entire $1.6 trillion in federal student loan debt Americans owe.
Related: What Happens to My Parent PLUS Loans When I Retire?
Parent PLUS Loan forgiveness during Covid
Since the federal government instituted a payment pause and passed the CARES Act nearly three years ago, news reports have been full of stories about forgiveness plans for student loans. With so much information out there, it’s difficult to tell which opportunities you can benefit from and the steps you need to take to meet any eligibility requirements.
Before you let frustration and anxiety cause you to miss out on any benefits you have a right to receive, let me explain how you can get Parent PLUS Loan forgiveness during COVID.
Biden’s loan cancellation plan
A few months ago, President Joe Biden announced a plan to wipe out up to $10 thousand of student debt for millions of Americans and even more for Pell Grant recipients.
Over 26 million people have applied for debt cancellation. The Education Department has approved 16 million applications. But it’s been blocked from wiping out any debt.
The program has set off a flurry of legal challenges that the Biden administration has fought to overcome. But the one filed by the six Republican-led states — Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina — likely represents the most serious threat. The states have said that the president’s plan exceeds his executive authority, isn’t tailored to address the effects of the pandemic, and would deprive their state-backed loan servicers of future tax revenue.
The case is with the Supreme Court. There’s a question of whether the states have standing to sue. The justices are expected to decide on that issue and others by this summer. Student loan payments are on hold until after the legal challenges have been resolved. If the litigation isn’t over by June 30, payments will resume 60 days later.
Related: Student Loan Pause End Date
Income-Driven Repayment Plan Forgiveness
Income-driven repayment plans are a collection of safety net repayment options that tie your monthly payments to how much money you make. So the less you earn, the less you’ll pay each month. IDR plans also come with a promise from the government: As long as you pay what your income allows — even if it’s 0 bucks a month — the Education Department will write off your remaining loan balance after 20 to 25 years, depending on whether you borrowed loans for grad school.
Related: How Income-Driven Repayment Plan Forgiveness Works
For years, the repayment program was mismanaged by private companies the government hired. They made it hard for borrowers to access IDR plans and often steered them into deferment and forbearance.
So now the department is offering student loan borrowers a do-over. It plans to review all Ed-owned student loans and credit them for payments they’ve made under any student loan repayment plan and time spent in long chunks of forbearance and deferment.
The department estimates this review will trigger loan forgiveness for tens of thousands of people and bring millions more closer to having their debt wiped out.
Parent PLUS Loan borrowers will receive this credit automatically if the Education Department holds their loans. Those with privately-held parent loans made through the Federal Family Education Loan Program will not qualify unless they consolidate their debt into the Federal Direct Loan Program by May 1, 2023.
Related: How the IDR Waiver Works
Not sure if you have FFELP Parent PLUS Loans? If you had to continue to pay your parent loans throughout the pandemic, you likely have privately-held FFEL Loans. To confirm, contact your loan servicer or check the Federal Student Aid site, StudentAid.gov.
Public Service Loan Forgiveness
Parents who borrowed loans for their children’s education can get their remaining balance forgiven after 10 years of full-time work with the government, nonprofit, or other qualifying employers.
The PSLF Program was broken for years. Many people were repeatedly denied relief because they had the wrong loan or were enrolled in the wrong repayment plan. Last October, the Education Department temporarily fixed that by reducing the red tape and confusing rules that have long hobbled the program.
The PSLF Waiver has wiped out $24 billion in student debt for close to 360 thousand borrowers. The average borrower got over $67 thousand in loan forgiveness.
The time to apply for the waiver has come and gone, but parents who still have a public service job can get the full amount of their loans forgiven thanks to permanent changes made by the department. To qualify, you must do four things:
Work full-time for a qualifying employer.
Consolidate your Parent PLUS Loans into a Direct Consolidation Loan.
Switch to the income-contingent repayment plan.
Make 120 qualifying payments under the ICR plan.
Note: Previously, consolidating would reset any progress you’ve made toward PSLF. But if you consolidate your loans before May 1, 2023, you’ll be able to get retroactive PSLF credit.
Permanent disability discharge
During the pandemic, the Education Department wrote off over $9 billion in federal loans for nearly a half million borrowers with a mental or physical disability that keeps them from working. Parents can get their loans forgiven for their disabilities — not for their kid’s.
You can submit proof from your doctor, the Social Security administration, or the Veterans Administration to qualify.
Related: What Disabilities Qualify for Student Loan Forgiveness?
Will I owe taxes?
The IRS won’t charge you taxes on forgiven student loan debt until the end of 2025. But these states have laws that might make you liable for taxes on canceled loans:
Refunds for payments made during the Covid forbearance
If you tried to pay down the principal balance on your parent loans during the moratorium, you have the option to request a refund.
Getting this money back makes sense if you’re certain your loans will be forgiven under the PSLF or IDR Waivers. But it’s probably not the way to go if you’re waiting on Biden’s debt cancellation.
Note: If you consolidated your loan after March 13, 2020, you can’t get a refund for any payments made before you consolidated. And if you refinanced your federal loans with a private lender, the final payment you made when refinancing to a private student loan isn’t eligible for a refund.
What do I do if my loans aren't forgiven?
Before the forbearance ends, you’ll get a billing statement at least 21 before your first payment is due. The notice will have your payment amount and due date. If you can’t afford it, consider switching your payment plan.
Another option is to look into refinancing with a private lender. Parent PLUS Loans have interest rates higher than other federal loans. Depending on your credit score, you may be able to refinance and get a lower interest rate, which can lower your monthly payments and reduce the amount you pay in interest.
Use an online marketplace like Credible to shop with multiple lenders and get preapprovals without adding a hard credit check on your credit report.
Bankruptcy is something to look into — especially after the government’s recent changes in how it defends student loan bankruptcy cases. Read more about the student loan bankruptcy reform.
But the process is complex, and the cost can be high. Plus, the bankruptcy filing will remain a black mark on your credit history for up to a decade, making it hard for you to get credit cards, bank loans, a mortgage, etc.
There are many forgiveness opportunities for Parent PLUS Loans during the Covid-forbearance. The right program for you depends on where you work, how long you’ve been in repayment, and whether you’re disabled.
Book a call with me if you have questions about your loans and want advice. I’ll look at your situation and give you a clear action plan.