Can Parent PLUS Loans Be Forgiven? Yes, Here’s How

Parent PLUS Loans have higher interest rates, more fees, and worst repayment options than other federal loans, but they qualify for many of the same forgiveness programs, including Biden’s $10k debt cancellation.

You did what you thought was right for your child, who deserved the chance to get a college education like you did years ago. Taking out Parent PLUS Loans helped your child obtain their degree, but now that they’re gone, you’re left with a high-interest rate loan whose balance seems to grow no matter how much extra money you pay towards it.

You wonder if the investment you made in your child with these loans was worth it. It was. You did what 3.7 million other parents have done for their child. But now you’re stuck with debt that seems impossible to get rid of.

Thankfully, the U.S. Department of Education has relief options for parent borrowers. Parent PLUS Loans are not only included in President Joe Biden’s student loan forgiveness plan, but the government will also write off your entire loan balance if you make monthly payments for 20 years or work in public service for a decade.

Keep reading to learn how parent student loans can be forgiven.

Related: How do Parent PLUS Loans Work?

The Biden administration announced last month that the president would take executive action to grant $10-20 thousand in student debt relief for millions of federal student loan borrowers. The plan has faced a number of legal challenges as well as criticism from Republicans and some Democrats in battleground states who fear it could alienate swing voters in November. Despite those issues, the White House continues to encourage borrowers to join the 20 million people who’ve already applied.

Parents with Direct PLUS Loans are eligible for this loan cancellation opportunity so long as they fall under the following income caps:

• $125 thousand for individuals.

• $250 thousand for households.

If your adjusted gross income on your federal tax return in 2020 or 2021 was less than those amounts, you’re eligible for the forgiveness.

You’d get $20 thousand in relief if you received a Pell Grant when you were an undergraduate student. If you never got that grant, but your child did, you’re eligible for no more than $10 thousand of cancellation.

But what if you have parent loans and other federal student loans? The forgiveness amounts are per borrower across all their loans. So you can’t get $10 thousand for the loans you took out for your education and $10 thousand more for your child’s education. Similarly, if you borrowed PLUS Loans for multiple children, you’ll only get $10 thousand or $20 thousand, depending on whether you received a Pell Grant.

How the relief will be applied: Unless you’re in default, the Education Department will likely apply the forgiveness to your Parent PLUS Loans first because it’s prioritizing loans with higher interest rates.

You can apply to have your debt discharged on the Federal Student Aid website, StudentAid.gov. The deadline is Dec. 31, 2022.

Learn More: How to Apply for $10k Student Loan Forgiveness?

The Education Department promises debt forgiveness to every federal student loan borrower after at least two decades of payments. To qualify, borrowers must enroll in one of the department’s income-driven repayment plans and make their student loan payments on time and for the full amount due.

Parent PLUS Loans are eligible for IDR Forgiveness, but only after they’ve been consolidated into a Direct Consolidation Loan. This extra step is needed because parent loans aren’t eligible for income-driven repayment until they’re consolidated into a Direct Loan. Once that happens, the new loan can be repaid under the Income-Contingent Repayment Plan. Read more about repayment options for Parent PLUS Loans.

Related: How to Consolidate Parent PLUS Loans

But what if you’ve never consolidated and switched to the ICR plan? Normally, you’d have to pay for 20 more years before you could have your remaining balance written off. But earlier this year, the Education Department announced that for a limited time, it would allow borrowers to consolidate and get credit for every payment they’ve made since taking out the loan. The IDR Account Adjustment will also give borrowers credit toward forgiveness for some of the time their accounts were in forbearance — like during the payment pause — or deferment.

The White House estimates that the IDR Waiver will immediately wipe out the debts of hundreds of thousands of borrowers and push millions more to the brink of forgiveness.

You don’t need to apply for this benefit if the Education Department holds your loans. The department will automatically review your account and update StudentAid.gov with your progress toward forgiveness.

But if a guaranty agency holds your federal student loans, you’ll need to consolidate those loans into a Direct Loan by July 1, 2023. Note: Your federal loans are with a guaranty agency if you had to keep paying your federal loans throughout the pandemic.

Tax liability: If your loans are forgiven anytime before 2026, the forgiven amount will be tax-free as part of the American Rescue Plan.

Learn More: Are Consolidation Loans Eligible for Loan Forgiveness?

Parents who work full-time for the government or a nonprofit employer can have their entire federal student loan debt forgiven tax-free — but they’ll have to jump through two hoops to meet the PSLF Program’s complex eligibility requirements. First, they’ll need to consolidate their Parent PLUS Loans into a Direct Loan. Second, they’ll need to switch to the income-contingent repayment plan.

For many parents, changing plans leads to them getting a lower monthly payment. To calculate your bill, the ICR plan looks at your discretionary income and family size. The lower your income, the less you’ll pay. Conversely, the fewer people in your household, the more your bill will be.

Related: Are Parent PLUS Loans Eligible for PSLF?

As a result, parents with high incomes and small family sizes may pay significantly more than if they stayed in a plan that spreads their payments over 25 years or more.

Before you consolidate, use the Loan Simulator on StudentAid.gov to estimate your payments under the different plans. It may turn out that you’ll pay your loans off before you get them forgiven under the PSLF Program. If that’s the case, refinancing your parent loans with a private lender to grab a lower interest rate may be the better choice — especially if your personal finances are in order and you have a good credit score.

Use an online marketplace like Credible to shop simultaneously with multiple student loan refinancing lenders. Read more about how to refinance Parent PLUS Loans.

Related: How to Transfer Parent PLUS Loans to a Student?

There are student loan forgiveness programs for Parent PLUS Loan borrowers. Once implemented, Biden’s debt relief plan will clear the balances of tens of thousands of parents. The IDR Waiver and the PSLF program will take care of the rest for many more parents. A handful of people don’t work in public service and will likely pay off their loans before they hit the 20-year mark. For them, refinancing the loans with a private lender to get a lower interest rate makes a lot of sense.

Need help deciding the best path for your parent loans? Schedule a call with me, and we’ll review your loans and develop the right forgiveness program for you.

UP NEXT: Can Private Student Loans Be Forgiven?