1. Enroll in the ICR Plan
The U.S. Department of Education allows all student loan borrowers, including parents, the opportunity to get an affordable monthly payment based on their income and family size. Parent PLUS loans are eligible for the Income-Contingent Repayment (ICR), but only after the parent loans have been combined into a federal Direct Consolidation Loan.
Once consolidated, the loan servicer will cap your monthly payment at no more than 20% of your discretionary income. Many retirees who receive Social Security benefits and a small pension end up paying less than $100 per month regardless of their loan balance. Plus, their remaining loan amount will be forgiven after they make 300 qualifying payments (e.g., on-time and for the full amount due).
Choosing a payment plan before retirement. Before you retire, the ICR Plan may not be the best Parent PLUS Loan repayment option if you’re seeking a lower payment amount. The Extended or Graduated repayment plan may offer you a more affordable payment until your income decreases.
Learn More: Tips for Retiring With Student Loan Debt
2. Refinance with a private lender
Parent PLUS Loans often have interest rates 1-3% more than other federal student loans. Refinancing parent loans with a private lender could allow you to get a lower interest rate, which will help you get a lower monthly payment and pay the loans off faster.
To qualify, you’ll need a good credit score (680+) and enough income to cover your monthly bills and other payments for education loans. Since there is an income requirement, explore refinancing Parent PLUS Loans before you retire and your income decreases.
Note: If you refinance with a private lender, you’ll lose access to federal benefits like deferment, forbearance, and student loan forgiveness programs
3. Transfer Parent PLUS Loans into your child’s name
If your child has good credit — a score that’s at least in the 600’s — and enough income to cover their expenses and debt payments, you may be able to transfer Parent PLUS Loans into their name with a private student loan refinance. Not all lenders allow this switch, but several do.
The benefit to you is obvious: you get free from the student debt, your child takes over the student loan payments, and you can start putting more money into retirement plans.
The tradeoff in refinancing is that the loans will lose protections like payment suspension during the pandemic, income-based repayment plans, and cancellation at death or disability.
Note: Refinancing may be an option even if your child doesn’t have good credit and a low debt-to-income ratio. The lender may ask you to be a cosigner. Before you agree, know your cosigner rights.