#1 Student Loan Lawyer
Updated on February 2, 2023
As college costs soar, parents face a difficult decision: sacrifice their financial stability to fund their children’s college education or watch their kids’ dreams fade.
Many choose the first option, turning to federal Parent PLUS Loans for help. But these loans, which are a type of federal student loan that lets a parent borrow the cost of attendance for their child’s education, come with a cost — interest rates that can soar as high as 8% and limited repayment options.
Thankfully, the federal government promises to forgive the remaining balance owed on Direct Parent PLUS Loans after ten years of public service or 25 years of payments on an income-driven plan. And if the Supreme Court approves President Joe Biden’s debt forgiveness plan, Parent PLUS Loans will also be erased for those who meet the income requirements.
Related: Student Loan Forgiveness Income Limits
While the eligibility criteria for these programs are strict and the application process complex, don’t let it overwhelm you. With the right guidance, loan forgiveness is achievable.
Ahead, I’ve broken down how to qualify for Parent PLUS Loan forgiveness programs to help simplify this daunting task. That way, you don’t have to feel like you’re fighting an uphill battle alone.
Parent PLUS Loans qualify for Biden’s loan cancellation plan
Last August, President Biden made good on his campaign promise to forgive federal student loans for 43 million Americans. Borrowers were overjoyed and flocked to the application portal when it opened a few weeks later and showed their support at the voting booths for Democratic leaders who responded to their cries for debt relief.
But as quickly as hope appeared, legal challenges from Republicans and conservative groups halted the plan. Yet, the White House refuses to give up. The U.S. Department of Education is eager to start canceling student loan debt when the Supreme Court gives the okay.
Here’s what this means for Parent PLUS Loan borrowers.
Parents who earned less than $125 thousand during either of the first two years of the pandemic can get $10 thousand of forgiveness for the Direct PLUS Loans they borrowed for their child’s education. That amount jumps to $20 thousand for parents who went to college and received a Pell Grant, a type of aid given to low-income undergraduate students.
According to a report from The Century Foundation, the Biden administration’s loan cancellation plan could be a lifesaver for the 3.7 million families burdened with Parent PLUS Loans, many of which are low-income Black and Latino families.
So, if you’re one of the millions of Americans facing Parent PLUS Loans, this plan could offer a glimmer of hope and real relief.
Will Parent PLUS loans be forgiven for each child?
Parent PLUS Loans will not be forgiven for each child. The total loan forgiveness is capped, regardless of the number of loans you have taken out. Even if you have taken out Direct PLUS Loans for multiple children or your education, the most you can expect to have forgiven is $20 thousand, depending on your eligibility for Pell Grants.
When it comes time to pay off your loans, the Department of Education will prioritize loans with higher interest rates. So, it’s possible that your child’s loans may be paid off before yours. That’s because Parent PLUS Loans generally have higher interest rates than other federal student loans.
Income-Driven Repayment Plan Forgiveness
For many student loan borrowers, the promise of Income-Driven Repayment (IDR) plans offers a glimmer of hope in the face of mounting debt. With its focus on affordability, IDR bases monthly payments on the borrower’s discretionary income rather than the total amount owed, providing financial relief over 20 or 25 years and ultimately forgiving any remaining loan balance.
Related: Income-Driven Repayment Plan Forgiveness
But parents with Parent PLUS Loans aren’t automatically eligible for these IDR plans. They must first consolidate their parent loans into a Direct Consolidation Loan.
Related: How to Get Income-Based Repayment for Parent PLUS Loans
This new loan would qualify for the Income-Contingent Repayment Plan, letting them make payments over 25 years. The government would forgive any remaining debt at the end of the repayment term.
Keep in mind that there may be tax implications on the forgiven amount, depending on the IRS rules. So you’d want to speak with an estate planning attorney or tax professional to mitigate the tax hit.
The new IDR Waiver
The Education Department promised a major change for millions of federal student loan borrowers last April. It announced a plan to credit them for every payment made under any student loan repayment plan, even if they never enrolled in an IDR plan. This one-time opportunity will also include credit for time spent in forbearance and some deferment periods.
To take advantage of the IDR Waiver, parents must have Ed-owned loans, meaning the Education Department must own their Parent PLUS Loans.
The department initially aimed to finish reviewing all borrower accounts by the end of last year but had to pause the plan due to a surge in applications for the Limited PSLF Waiver and President Biden’s debt cancellation initiative.
Once the accounts are adjusted, likely this summer, around 40,000 borrowers with older loans could have their balances erased. Also, over 3.6 million borrowers could receive at least three extra years of credit toward IDR forgiveness.
Public Service Loan Forgiveness for parents
Parents with Direct PLUS Loans or a Federal Direct Consolidation Loan may be eligible for Public Service Loan Forgiveness (PSLF) if they make 120 qualifying payments while working full-time for a qualifying employer, i.e., the government or a nonprofit organization.
Keep in mind that only the parent’s public service work will be considered for PSLF, so the loans won’t be forgiven based on the child’s public service employment.
To be eligible for PSLF, Parent PLUS Loans made under the Federal Family Education Loan Program (FFEL) must be consolidated into a Direct Loan.
Related: Are Parent PLUS Loans Eligible for PSLF?
Can Parent PLUS Loans be forgiven for teachers?
Yes, Parent PLUS Loans can be forgiven for teachers through the PSLF and IDR forgiveness programs, which have the potential to erase the entire loan balance. These forgiveness options are distinct from the Teacher Loan Forgiveness Program, which offers more limited forgiveness to educators. It caps the debt it will forgive at less than $20,000.
In the world of loan forgiveness, PSLF and IDR are the big hitters, offering full relief to teachers.
How to apply for parent plus loan forgiveness
To apply for Parent PLUS loan forgiveness, follow these steps:
Determine eligibility. Make sure your Parent PLUS Loans are owned by the Education Department and determine if you qualify for any loan forgiveness programs.
Choose a forgiveness program. Decide which loan forgiveness program you want to apply for, such as income-driven repayment plan forgiveness or the PSLF program.
Complete the application. Fill out the proper application form and provide supporting documentation. You can find those forms on the Federal Student Aid website, StudentAid.gov.
Submit the application. Submit the completed application and supporting documents to your loan servicer.
Wait for a decision. The Education Department will review your application and notify you of its decision.
Private student loan refinancing can help, but it comes at a cost
Refinancing Parent PLUS Loans with a private lender may seem attractive — especially if you have a good credit score. You can get a lower interest rate and more affordable student loan payments. But it comes with a significant drawback.
When you refinance federal loans into private student loans, you give up valuable federal protections, such as access to the ICR Plan and loan forgiveness programs.
Your repayment options will be limited if you encounter financial difficulty and need more manageable monthly payments. At most, your lender may let you temporarily postpone your payments or pay just the interest for a short time.
Before taking this step, make sure you thoroughly understand the consequences of student loan refinancing.
Related: How to Refinance Parent PLUS Loans
There are student loan forgiveness programs for Parent PLUS Loan borrowers.
Once implemented, Biden’s federal student loan 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.