Standard repayment plan: Pay off your loan by making fixed monthly payments for 10 years. Graduated repayment plan: Start with smaller payments, then have your payments gradually increase during the 10-year repayment period. Extended repayment plan: Fixed or graduated payments for 25 years.
Parent PLUS loans can potentially be forgiven after 10 years under specific conditions, such as through the Public Service Loan Forgiveness (PSLF) program after consolidation into a direct consolidation loan. Parent borrowers must enroll in the Income-Contingent Repayment (ICR) plan to qualify for PSLF.
The monthly payment is set at 20% of your discretionary income, which is defined as the amount by which your income exceeds 100% of the poverty line. After 25 years of payments under income-contingent repayment, the remaining balance will be forgiven.
In addition to the lack of practical discharge in bankruptcy, and the lack of income-based repayment programs, the other big problem with Parent Plus loans is that no one is looking at your ability to repay the loan when the loan is made.
Your parent PLUS loan may be discharged if you (not the child) become totally and permanently disabled, die, or (in some cases) file for bankruptcy. Your parent PLUS loan also may be discharged if the student for whom you borrowed dies.
The average Parent PLUS Loan debt is based on Q4 of each year or the most recent data published (as 2022 currently only has Q3). Based on the information from Federal Student Aid, as of 2022, the average Parent PLUS Loan debt is $29,528.
How to Use the Double Consolidation Loophole: The key to using the double consolidation loophole is to consolidate each of your Parent PLUS Loans twice. In this scenario, a borrower can have as few as two Parent PLUS Loans.
Unlike all other federal student loans, there are no explicit borrowing limits for parent PLUS loans. Parents may borrow up to the full cost of attendance, which is determined by the institution, not the government, and includes books, travel and living expenses. There are no ability-to-repay standards for PLUS loans.
What happens to my parent's PLUS loan if my parent dies or if I die? Your parent's PLUS loan will be discharged if your parent dies or if you (the student on whose behalf your parent obtained the loan) die.
If you can't pay off the loan immediately, you have two options: rehabilitation and consolidation . Rehabilitation: After 9 months of reasonable payments (based on your income), your loan will be in good standing. Rehabilitation removes the default note from your credit report.
Direct PLUS Loans for Parents
If there is money left over, the school will pay it to you. In some cases, with your permission, the school may give the leftover money to your child.
The rest can be erased after a decade of work in public service or after you've made 20 years' worth of payments under the income-contingent repayment plan. Ahead, learn what happens to your parent loans when you retire and how to get the balance forgiven.
Pay Off High-Interest Loans First
With this approach, you pay off your loans from the highest interest rate to the lowest. You make the minimum payments on each balance except the highest-rate loan. You also make an extra monthly payment based on how much you can put toward the debt.
Can the loan be transferred to the student? No, a Direct PLUS Loan made to a parent cannot be transferred to the child. You, the parent borrower, are legally responsible for repaying the loan.
Parent PLUS loans have a fixed interest rate, and the borrower pays an origination fee for each loan. Parent PLUS loans are not subsidized, so interest begins to accrue on the outstanding loan balance as soon as funds are disbursed and continues to accrue even if the loan is in deferment.
If you're a parent or graduate student seeking a Direct PLUS Loan, one of the requirements to qualify is that you must not have an adverse credit history. If your application is denied because of an adverse credit history, don't give up. You still have options.
The Bottom Line. Yes, borrowers with Parent PLUS Loans can have their debts forgiven after 10 years (or 120 eligible monthly payments) with the PSLF program.
The $100,000 Loophole.
With a larger below-market loan, the $100,000 loophole can save you from unwanted tax results. To qualify for this loophole, all outstanding loans between you and the borrower must aggregate to $100,000 or less.
However, federal parent PLUS loans offer a standard fixed interest rate, regardless of credit score or income level. These loans also come with federal benefits and protections, like deferment, forbearance and Income-Contingent Repayment (ICR).
What Are Some Reasons to Avoid PLUS Loans? First, PLUS loans have no automatic grace period. Then there's the fact they aren't eligible for most IDR plans. Then, borrowing too much is easy to do, and finally, they're nearly impossible to get out of, even in bankruptcy.
Generally, you'll have from 10 to 25 years to repay your loan, depending on the repayment plan that you choose. Your required monthly payment amount will vary depending on how much you borrowed, the interest rates on your loans, and your repayment plan.
If you have Parent Plus loans, consolidation will make those loans eligible for the income contingent repayment plan. Consolidation is also one way of getting your federal loans out of default. Consolidation can also lower your monthly payments by extending the term of the loan.