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.
A $30,000 private student loan can cost approximately $159.51 per month to $737.38 per month, depending on your interest rate and the term you choose. But, you may be able to cut your cost by comparing your options, improving your credit score or getting a cosigner.
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.
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.
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. Choose a repayment plan that best meets your needs.
For example, the interest on a $30,000, 36-month loan at 6% is $2,856. The same loan ($30,000 at 6%) paid back over 72 months would cost $5,797 in interest. Even small changes in your rate can impact how much total interest amount you pay overall.
Let's say you have $200,000 in student loans at 6% interest on a 10-year repayment term. Your monthly payments would be $2,220. If you can manage an additional $200 a month, you could save a total of $7,796 while trimming a year off your repayment plan.
Nearly 13% of Parent PLUS loan borrowers default within four years of their child's graduation. Data from more than 2,000 institutions reveals that as of 2021, an average of 12.7% of Parent PLUS loan borrowers have defaulted on their loan just four years after their child completed their degree.
Parent PLUS loans are educational loans, and the borrower can get an income tax deduction. When borrowers review their tax deductions, they can deduct up to $2,500 per year in interest paid on the Parent PLUS loan.
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.
While you may consolidate Parent PLUS Loans with a Federal Direct Consolidation Loan, refinancing is the only way to lower your interest rate or transfer a Parent PLUS Loan to the student. This option comes with a variety of pros and cons that you will want to explore before you make a decision.
Let's say you currently owe $200,000 on your mortgage and you want to pay it off in 5 years or 60 months. In this case, you'll need to increase your payments to about $3,400 per month.
If your lender offered you a $300,000 loan with a 15-year fixed-rate term at a 7% annual percentage rate (APR), you could expect your monthly payment — principal and interest — to be about $2,696. If you took out a 30-year fixed-rate mortgage with a 7% APR, your payment could be about $1,995.
This repayment plan leads to loan forgiveness after 25 years under normal conditions, but borrowers pursuing PSLF could have remaining debt forgiven after 10 years (if you still have a balance left).
Refinancing. If you have good credit and enough household income to qualify, you may also be able to refinance your Parent PLUS loan to a lower interest rate through a private lender, which can potentially save you money.
Summary: The Parent PLUS Loan is a federal loan that parents of dependent undergraduate students can use to help pay for their child's education. The Direct Parent PLUS Loan offers a fixed 9.08% interest rate for the 2024 - 2025 school year and flexible loan limits.