#1 Student Loan Lawyer
Updated on April 27, 2023
The federal government lets parents borrow loans to cover college costs for their undergraduate students. But it doesn’t give them the same repayment options that it offers other student loan borrowers.
Parent PLUS Loans aren’t eligible for income-driven plans, including the income-contingent repayment plan.
But don’t worry. There’s still a way to make loan repayment more manageable.
By consolidating parent loans into a Direct Consolidation Loan, you’ll be able to repay the new loan under the ICR plan. This option can provide much-needed relief — especially if you’re retired and rely only on Social Security benefits to cover your living expenses.
Ahead, I’ll share how to open up income-based repayment options for Parent PLUS Loans.
Loan repayment plans for Parent PLUS Loans
Parent PLUS Loans are eligible for the Standard Repayment Plan, Graduated Repayment Plan, and Extended Repayment Plan.
Unfortunately, these plans don’t offer loan forgiveness like the Public Service Loan Forgiveness program, an income-driven repayment plan forgiveness, or the IDR Waiver. Instead, they require you to repay the loan in full over a 10-30 year repayment term, depending on your loan balance and the payment plan you choose.
Related: Are Parent PLUS Loans Eligible for PSLF?
If you’re searching for a way to wipe out your parent loan, there’s one option: consolidate your loans into a Direct Consolidation Loan. This will improve your chances of getting your loans wiped out and may even lower your monthly payment amount.
Note: Until May 1, 2023, borrowers with federal student loan debt can consolidate their loans and get credit toward student loan forgiveness. The Biden administration is using the IDR Waiver to count time spent in long-term forbearance or deferment as qualifying payments for income-based forgiveness. This opportunity is open only to those with federal loans. Private student loans aren’t eligible.
How to get income-based repayment for Parent PLUS Loans
Parent borrowers can become eligible for one of the IDR Plans by consolidating their Parent PLUS Loans into a Direct Consolidation Loan. In doing so, they can enroll in the Income-Contingent Repayment (ICR) plan.
Unlike Revised Pay As You Earn, Pay As You Earn, and Income-Based Repayment, ICR doesn’t require a partial financial hardship to qualify, making it a more accessible option. Eligibility hinges on having an eligible loan.
If you meet this requirement, you can switch to ICR for monthly payments based on your income. Your eligibility isn’t influenced by whether your loan amount exceeds your annual discretionary income or how much your annual income represents.
But by taking advantage of the double consolidation loophole, borrowers can access even more favorable repayment options. This strategy can significantly reduce monthly loan payments and potentially lead to loan forgiveness, providing substantial financial relief.
How to consolidate Parent PLUS Loans for income-contingent repayment
To get Parent PLUS Loans into an income-contingent repayment plan, follow these steps:
Consolidate. You can consolidate Parent PLUS Loans for free on the Federal Student Aid website, StudentAid.gov. Once logged in with your FSA ID, you can choose the loans you want to be included in your consolidation application. You can add your own education loans, but you’ll give up access to better student loan repayment plans like REPAYE and IBR.
Submit your income information. When you apply online, you can connect to the IRS database and import the adjusted gross income from your most recently filed tax return. That information will be automatically sent to the loan servicer along with a copy of the income-driven repayment application.
Wait for a new monthly payment amount. The consolidation process takes about 6-8 weeks to complete. Once it’s finished, your servicer will send you a billing statement showing your new payment terms.
Related: How to Consolidate Parent PLUS Loans
How much is the monthly payment for Parent PLUS Loans on income-based repayment?
Your monthly payment under the income-contingent repayment plan is set at 20% of your discretionary income — the amount by which your taxable income exceeds 100% of the poverty line. The Department of Education writes off the remaining balance after 25 years of payments.
Taxable income includes wages, salaries, bonuses and tips, investment income, and various unearned sources of money. It may not include money from accident and personal injury rewards, cash rebates, child support, alimony, federal income tax refunds, foster care payments, inheritances/money gifts (up to a certain amount), life insurance payouts, scholarships/fellowship grants, veterans benefits or welfare benefits.
Use the Loan Simulator to estimate your student loan payments under different plans.
Related: Parent PLUS Loan Repayment Options
What to do if you still can’t afford the payments
You might feel stuck between a rock and a hard place if you can’t afford the payments on your Parent PLUS Loans, even if you switch to a plan based on your income and family size.
Your only other option may be to refinance your parent loans with a private lender.
Refinancing may get you a lower interest rate, making your monthly payments more manageable.
But before you make the switch, it’s important to understand what you’ll be giving up.
When you refinance a federal loan into a private loan, you’ll toss aside your eligibility for loan forgiveness programs and income-driven payment plans offered by the government. Instead, your new lender will expect you to make payments as agreed, no matter what life throws your way. So, weigh the pros and cons before making a decision that will affect your financial future.
Are you feeling overwhelmed by your Parent PLUS Loan payments? Don’t worry. You’re not alone.
Although the popular REPAYE, PAYE, and IBR plans aren’t an option for you, there’s still hope.
By consolidating your loan into a Direct Consolidation Loan, you’ll be able to enroll in the ICR plan and get on the road to a manageable monthly payment.
Good news, too! The federal government has extended the payment pause until this summer, giving you plenty of time to explore your options and find the best plan for you.
Need a hand sorting through it all? Book a call. I’ve guided student loan borrowers like yourself to lower payments and loan forgiveness for years. Let’s work together to find a solution for your Parent PLUS Loans. I can’t wait to get started.