4 Easy Options to Get Parent PLUS Loans Under Control in 2020

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Most student loan articles focus on struggling college graduates who can’t repay their debt. But what about their parents? We hardly ever hear about the moms and dads who are stuck paying back parent PLUS loans for children who obtained undergraduate degrees.

Parent PLUS loan debt currently stands at about $89.9 billion, spread out among 3.6 million borrowers. Since the standard parent PLUS repayment term is 10 years, millions of parents could spend a decade (or more) attempting to repay what they’ve borrowed.

Repayment could even be extended to 25 years if the loans get consolidated, or if the federal student loan balance in question exceeds $30,000. Even worse, these types of loans have the highest interest rates among the various types of federal student debt. For the 2018-19 school year, the rate is 7.6%, compared with 5.05% for direct loans to undergrads.

So what can parents do to ease the strain on their finances? Here are four ways to get your parent PLUS debt under control this year.

1. Income-contingent parent PLUS loan repayment plan

Pros: Lowers monthly payments and offers parent PLUS loan forgiveness after 25 years.

Cons: Likely increases total interest charges. Requires paying a higher percentage of discretionary income than other income-driven repayment plans.

The federal government offers four types of income-driven repayment plans, but parent PLUS loans are only eligible for one: Income-Contingent Repayment (ICR).

ICR caps monthly student loan payments at 20% of the borrower’s discretionary income, which is the difference between your gross income and a minimum level based on the federal poverty guideline for your state and family size.

Parents generally have to pay a larger chunk of their discretionary income with this program, but these payments can still be less than they’d be on other repayment plans. This is helpful if you hope to free up extra cash flow each month.

One advantage of ICR is that you’ll be eligible for parent PLUS loan forgiveness after you make payments for 25 years. However, spreading out parent PLUS loan repayment over such a long period can cost you more in interest overall. Plus, you might be subject to additional taxes on the amount forgiven.

To qualify for ICR, your parent PLUS loan needs to be consolidated first by the Department of Education into a direct consolidation loan. This is the standard federal student loan consolidation option.

To apply for a direct consolidation loan, first contact your student loan servicer. There are nine federal loan servicers:

Your loan servicer should be able to advise you on the best way to proceed. Note that the federal consolidation process typically takes between 30 and 90 days.

2. Parent PLUS loan consolidation and refinancing

Pros: Could decrease high interest rates on parent PLUS loans.

Cons: Requires borrowers to qualify based on credit and income. Borrowers could also lose some flexibility afforded by federal student loans.

Parent PLUS loan refinancing has the potential to work especially well for some borrowers. In general, parents of college students have more established credit histories than graduates in their 20s. If you’re a parent with a high credit score, then you have a better chance of approval for student loan refinancing.

Lenders that refinance parent PLUS loans like to see steady income and employment history as well, which will increase your odds of being approved. Want to get a sense of whether you might qualify to refinance? Take our refinancing eligibility quiz:

Private student loans don’t have all the same repayment options that federal student loans do. Most lenders offer terms between five and 20 years, as well as the choice between a variable and fixed interest rate. But you probably won’t be able to put your loans on an income-driven plan, and only a few private lenders offer forbearance if you run into financial hardship.

Plus, you can change federal student loan repayment plans at any time, but this isn’t the case with private student loans. Once you complete refinancing, your only other option to change your repayment terms would be to refinance again.

Before you decide to refinance, you’ll want to determine whether a lower monthly payment and the interest savings are worth giving up some of the federal protections and forgiveness programs.

Refinancing parent PLUS loans includes another option: refinancing your parent PLUS loans into your child’s name. By doing this, your child becomes responsible for their debt, and you no longer need to make payments. It can take the pressure off you, especially if you have been struggling with parent PLUS loan repayment.

Refinancing to a child’s name is currently offered by lenders such as SoFi, Laurel Road and CommonBond.

3. Public Service Loan Forgiveness (PSLF)

Pros: Eligible for parent PLUS loan forgiveness after 10 years.

Cons: Limited to certain career fields.

Public Service Loan Forgiveness (PSLF) is a federal program available to certain public service employees, such as those in government and nonprofit fields. This program forgives all federal student loan debt after 120 qualifying payments (typically 10 years).

Many graduates on track to take advantage of Public Service Loan Forgiveness do so with income-driven repayment plans. Just keep in mind that most of these plans aren’t available for parent PLUS loans. Instead, you’ll likely need to consolidate your loan with the federal government and use Income-Contingent Repayment — if you use the standard 10-year repayment plan, then your loan balance would be zero after 120 payments, with nothing left to forgive.

Before you shoot for PSLF, make sure you definitely qualify. Unfortunately, many PSLF applicants who worked in public service for 10 years and expected to receive loan forgiveness had their applications rejected because they didn’t meet all requirements or didn’t file the right paperwork each year.

You should also make sure extending your loan terms with ICR is worth the extra amount you’d pay on interest. If you can make extra payments instead, you could get out of debt years ahead of schedule, which could be a better option for some borrowers.

Besides making sure your loans are on the right repayment plan, keep an eye out for any administrative changes to PSLF. The program has come under fire from critics recently, with some Republican lawmakers recommending eliminating it altogether. While the program is functioning right now, it’s not guaranteed to last forever.

4. Standard Parent PLUS Loan repayment

Pros: Keeps the total loan cost down via repayment over 10 years.

Cons: Could be less affordable due to higher monthly payments.

If you’re paying off a parent PLUS loan, you’ll automatically be enrolled in the standard repayment plan, which involves a 10-year repayment term with fixed monthly payments. There’s nothing wrong with this option, as long as you can afford to make the monthly payments. Stay on track, and you’ll have the loans paid off in 10 years.

The problems with standard parent PLUS loan repayment only surface if you can’t afford to keep up with the bills. In such cases, consider pursuing another repayment option, such as ICR, instead of risking default.

It’s worth noting that graduated repayment and extended repayment plans are also available. However, these might not be preferable to ICR or other options. Extended repayment, for instance, adds more time and interest to your overall payment, but it doesn’t end in loan forgiveness. These plans could give you a lower monthly payment now, but the added interest costs could be pretty high.

Take control of your parent PLUS loans

Consider the choices above to determine which is the best fit for your plans and your income level. (And while we’re on the subject, don’t forget to check if you’re eligible for a student loan interest tax deduction.)

Overall, the best option for you will depend on your situation. But the right choice is typically the one that allows you to pay off your student loans as quickly as possible — with the lowest cost.

Rebecca Safier contributed to this report.

Interested in refinancing student loans?

Here are the top 6 lenders of 2020!
LenderVariable APREligible Degrees 
1.99% – 5.64%1Undergrad
& Graduate

Visit Earnest

1.89% – 5.90%2Undergrad
& Graduate

Visit Laurel Road

2.25% – 6.28%3Undergrad
& Graduate

Visit SoFi

1.89% – 6.77%4Undergrad
& Graduate

Visit Splash

2.39% – 6.01%Undergrad
& Graduate

Visit Elfi

1.99% – 5.61%5Undergrad
& Graduate

Visit CommonBond

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1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.

© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

All credit products are subject to credit approval.

Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

Interest Rate: A simple annual rate that is applied to an unpaid balance.

Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of September 9, 2020. Information and rates are subject to change without notice.
 


3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 2.99% APR to 6.28% APR (with AutoPay). Variable rates from 2.25% APR to 6.28% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.25% APR assumes current 1 month LIBOR rate of 0.18% plus 2.32% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. 

4 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. ‍All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.16% effective Sep 1, 2020 and may increase after consummation.

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.