#1 Student Loan Lawyer
Updated on April 27, 2023
Parent PLUS Loan borrowers can choose from four repayment plans offered by the U.S. Department of Education. The best plan for paying off your loans depends on your goals.
Compared to other federal student loans, Parent PLUS loans offer fewer repayment options and benefits. They qualify for fewer income-based repayment plans and loan forgiveness programs. In addition, these loans come with higher interest rates and fees and accrue interest more quickly since it builds up while your child is in school.
For those reasons, many parents borrow private student loans to cover their kids’ college costs. Private lenders offer lower interest rates and fewer fees, depending on your credit score. But they lack flexibility if unexpected financial changes occur, such as job loss or retirement.
Related: What Happens to Parent PLUS Loans When You Retire?
Parent PLUS Loans offer those protections. You can temporarily suspend payments with a deferment or forbearance. If you’re looking for something more long-term, you can switch to a plan that stretches your repayment period over 25 years or ties your monthly payment amount to your family size and discretionary income.
Read on to learn the repayment plans available for Parent PLUS Loans.
Note: If you’d like advice for choosing the best repayment plan for your situation, book a call to work with me. I’ve helped thousands of parents find a way to afford their Parent PLUS Loans so they can retire, buy a house, and sleep better at night.
Types of Parent PLUS Loan repayment plans
Parent borrowers have three primary repayment options when paying their Direct PLUS Loans:
Standard Repayment Plan – pays the balance over 10 to 30 years.
Graduated Repayment Plan – pays the balance over 20-25 years with gradual payment increases.
Extended Repayment Plan – pays the balance over 20-25 years with fixed or graduated payments.
These plans determine your monthly payment based on the loan balance and repayment term. You can extend the repayment period by accepting deferments and forbearances or by consolidating your parent loans into one loan.
A fourth option — the Income-Contingent Repayment (ICR) plan — bases payments on your taxable income and forgives the remaining balance after 25 years of student loan payments. ICR is suitable for lowering payments and increasing cash flow for living expenses.
But by leveraging the double consolidation loophole, borrowers can access more favorable repayment options like REPAYE, PAYE, or IBR.
This approach can significantly reduce monthly loan payments and potentially lead to loan forgiveness, offering substantial financial relief.
How to change plans
Switching to Standard, Graduated, or Extended repayment plans is easy — ask your loan servicer. Switching to an ICR plan, however, is trickier. Before you can move to that plan, you must first consolidate your Parent PLUS Loans into a Direct Consolidation Loan. The new loan would be eligible for ICR and the other repayment plans.
You can complete the application to consolidate parent PLUS loans on the Federal Student Aid website, StudentAid.gov. The Education Department will approve your loan consolidation application if you’re not in default for the loans you’re trying to consolidate.
Related: What is Student Loan Consolidation?
You can use that same site to complete the enrollment paperwork for the ICR Plan. You’ll need to document your family size, marital status, and proof of your income — a copy of your taxes, pay stubs, etc.
Note: If you have federal student debt for your own education, you might not want to consolidate them with your Parent PLUS Loans. You may jeopardize your progress toward PSLF and income-driven repayment plan and lose some student loan repayment options.
How to pay off Parent PLUS Loans
If you need a lower monthly payment, consolidate your loans and switch to the ICR plan. This is often the best choice for parent borrowers nearing retirement, facing financial hardship, or living on a fixed income from Social Security benefits or a pension. Depending on your income, your monthly payment could be as low as $5. Read more about income-driven repayment plans.
If you’re hoping for loan forgiveness, you’ll need to change to the income-contingent repayment plan and make payments for up to 25 years. You can get your student loan debt written off after 10 years if you work full-time for the government, nonprofit, or other qualifying employment. Read more about the Public Service Loan Forgiveness Program.
If you want to pay off Parent PLUS Loans quickly, consider refinancing with a private lender. You’ll need a good credit score, clean credit history, and enough money to comfortably afford your expenses and other debt payments — including for your house, credit card debt, and other student loans. Refinancing isn’t a good option for Parent PLUS Loan borrowers pursuing student loan forgiveness plans or needing an income-based repayment option. You’ll lose these benefits by refinancing with a private lender.
If you want to transfer responsibility for the loans to your children or spouse, student loan refinancing is your only option. Use an online marketplace like Credible to find a lender willing to refinance the loans in the spouse or child’s name and to check interest rates and repayment terms. Keep in mind that whomever you choose will need to prove their creditworthiness, or else they’ll need a cosigner.
The federal government lets parents — regardless of their financial circumstances — cover the cost of attendance not met by their child’s financial aid award package by borrowing loans on their behalf. By the time your kid finishes school, you could owe hundreds of thousands of dollars in parent loans without a clue how you will pay it all back. Thankfully, the Education Department offers several repayment plans for Parent PLUS Loans. The right choice for you depends on your situation.
Let’s talk if you want help exploring strategies for tackling your loans. I’ve helped thousands of families look at the available student loan options and choose the plan that lets them meet their goals without putting their retirement savings or wages at risk.