6 Options When You Can’t Afford Your Parent PLUS Loan

Federal parent plus loan

Each year, millions of parents help their children get a college education. In fact, a Student Loan Hero survey found that 55 percent of parents owe $40,000 or more for their kids’ college educations.

A common loan option parents use to fund college costs is a federal Parent PLUS loan. In fact, over 3.3 million parents are repaying more than $75 billion in outstanding PLUS loans.

Since July 2016, this type of loan comes with a 6.31% interest rate — the highest interest rate among federal student loans today. With this high rate, paying down a Parent PLUS loan can be hard.

If you’re struggling to afford Parent PLUS loan payments, consider these options.

1. Enroll in income-driven repayment

If you’re struggling with federal student loan payments, you can sign up for an income-driven repayment (IDR) plan. Under these plans, the government extends your repayment term and caps your monthly payments to a percentage of your discretionary income.

There are four types of IDR plans, but if you have Parent PLUS loans, you have just one option: Income-Contingent Repayment (ICR).

Under this plan, your lender sets your payments at 20 percent of your income. Your repayment term can be as long as 25 years. Although you’ll pay more in interest over time, this repayment plan can make your payments more manageable.

If you still have a balance on your loans after making payments under an ICR plan for 25 years, the government will discharge the remaining amount. However, the forgiven amount is taxable as income. It’s important to plan ahead so you’re not surprised by a large tax bill.

To get on an ICR plan, the government requires you to first consolidate your federal Parent PLUS loan into a Direct Consolidation loan. To start, apply for a consolidation loan online.

Want to see if Income-Contingent Repayment could benefit you? Use our calculator to find out.

2. Sign up for an alternative repayment plan

A federal Parent PLUS loan is eligible for other repayment plans outside of ICR. If you need some more breathing room in your budget, consider these alternatives:

  • Graduated Repayment Plan: With Graduated Repayment, your payments start out lower and then increase over time. The repayment term lasts for up to 10 years. This could be a helpful option if you have a low income now but expect it to rise in the future.
  • Extended Repayment Plan: Under an Extended Repayment Plan, your payment term is extended to up to 25 years, reducing your monthly payments. To qualify, you must have at least $30,000 in PLUS loans.

Keep in mind that you will pay more in interest over time with these alternative repayment options, though they can reduce your monthly bill so you have more breathing room.

3. Find out if you’re eligible for loan forgiveness

While many people think that parent student loans are ineligible for forgiveness, that’s untrue. You might be able to qualify for Public Service Loan Forgiveness (PSLF) if you work for an eligible nonprofit organization or government agency for 10 years.

After 10 years of making qualifying payments, the government will forgive your remaining loan balance. Unlike other forms of forgiveness, any amount that is forgiven under PSLF is not taxable as income.

This option might not be right for everyone; be sure to educate yourself on the full requirements before pursuing this program.

4. Refinance the federal Parent PLUS loan in your child’s name

If you’re struggling to keep up with student loan payments or are approaching retirement, you might want to consider refinancing the loans into your kid’s name.

If your child is gainfully employed and has a good credit score, they can work with a private lender to refinance the debt, taking out a new loan to pay off the Parent PLUS loan. They might even get a lower interest rate, longer repayment term, or reduced monthly payment by refinancing.

This approach makes your child solely responsible for repaying the debt. You’ll no longer make payments on the loans, so you can focus on your other financial goals.

5. Ask your child to help out

In the government’s eyes, you are responsible for repaying Parent PLUS loans. They cannot force your child to make payments on your behalf. But if you’re having trouble keeping up with your payments, it might be worth talking with your child.

Even if you don’t formally refinance the loans in your child’s name, you can sit down and explain your financial concerns. Work together to come up with a way for your child to help with the payments, such as covering 50 percent of the monthly bill. That way, you can get some relief while still helping your child in the early stages of their career.

6. Consider deferment or forbearance

In certain situations, you can enter your loans into deferment or forbearance. That means you can temporarily stop making payments without becoming delinquent on your debt.

With Parent PLUS loans, you may be able to defer your loans or put them into forbearance in the following situations:

  • If you or the student for whom you took out a Parent PLUS loan is enrolled at least half-time at an eligible school
  • If you are unemployed or facing significant financial hardship
  • If you are serving in active duty in the U.S. armed forces
  • If you are in a full-time rehabilitation program for people with disabilities

Deferment or forbearance can delay your payments for up to three years, depending on your situation. Interest will continue to accrue on the loans, but deferring payments can give you the time you need to get back on your feet.

Managing Parent PLUS loans

If you took out a federal Parent PLUS loan and feel overwhelmed, know that there are options available that can help you. From refinancing your debt to signing up for an Income-Contingent Repayment plan, you can find ways to make your payments more manageable.

For more information on helping your kids pay for college, read up on these tips.

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