As a parent, it can make sense to take out a Parent PLUS loan — you want to do what’s best for your child and help pay for their education, right?
While taking out this loan can be a great idea at the time, repayment becomes an overwhelming struggle for some borrowers.
Luckily, there are a couple of sources of Parent PLUS loan forgiveness you can investigate to get rid of that debt once and for all.
Parent PLUS loan forgiveness through Income-Contingent Repayment (ICR)
One way to get your Parent PLUS Loans forgiven is through the income-driven plan known as ICR. This plan caps your monthly payments at 20% of your discretionary income or the amount you would pay on a fixed 12-year plan, whichever is lower.
It also extends your repayment terms to 25 years, so you’ll be paying less each month. If you still have a balance at the end of 25 years, the remaining amount will be forgiven.
Your remaining balance will be discharged, but it will still be considered taxable income. So make sure to prepare for one last expense before you can say goodbye to your Parent PLUS Loans.
This kind of loan forgiveness takes a long time, but it could be a good option if you need relief from high monthly bills. The Office of Student Aid offers a handy Repayment Estimator tool to predict your monthly payments.
There’s just one problem with getting your Parent PLUS Loans on ICR — they’re not actually eligible for this repayment plan.
Don’t panic, though. There is a workaround. You can make your Parent PLUS Loans eligible by consolidating them first with a Direct Consolidation Loan.
Here are the steps to take in order to get your Parent PLUS Loans on ICR and eventually, qualify for loan forgiveness:
Step 1: Apply for a Direct Consolidation Loan through StudentLoans.gov.
Step 2: Talk to your loan servicer and choose ICR.
Step 3: Make payments on time for 25 years to get your loans forgiven. Pay any potential tax bills related to your loan forgiveness.
Two and a half decades is a long time to wait, but at least there is light at the end of the tunnel. By keeping up with payments, rest assured your Parent PLUS Loans will be forgiven eventually.
You might also qualify for Public Service Loan Forgiveness (PSLF)
A second option for Parent PLUS Loan forgiveness — and one that doesn’t take as long as the ICR approach — is PSLF.
Under this program, parents who work full-time for certain government entities or nonprofits and make consistent payments for 10 years can get their loans forgiven.
Just like with ICR, though, you’ll have to change up your repayment plan in order to qualify.
If you stayed on the standard 10-year plan, you wouldn’t have any remaining balance left on your loans to forgive. And you’re not eligible for most income-driven plans with the exception of ICR, if you consolidate first.
So again, you’ll need to apply for a Direct Consolidation Loan and then get your loan on ICR. Assuming you have a large enough loan and work for a qualifying employer, this route could lead you to loan forgiveness.
That being said, the fate of PSLF has been up in the air lately, and it’s unclear whether the government will continue to fund the program for new applicants.
In the meantime, though, the program still exists. If you work in public service, hold onto relevant documentation that you might need when you apply.
You might also fill out and submit the PSLF Employment Certification form on a yearly basis, or more often if you change employers.
After 10 years, you could see forgiveness of your Parent PLUS Loans (now technically a Direct Consolidation Loan). And here’s more good news: Under PSLF, your forgiven loans are not considered taxable income.
Refinance Parent PLUS loans in your child’s name
As a Parent PLUS loan borrower, your options for loan forgiveness are limited to forgiveness from ICR or through PSLF, both of which take a long time before you’ll get financial relief.
Instead of counting on loan forgiveness, you might also consider transferring your loans to your child. Even though you took out the loans in your name, you could trade them into your child’s name through student loan refinancing.
Your child must be the one who applies for student loan refinancing and gets approved. Most lenders look for a steady source of income and a strong credit score before approving a refinanced student loan.
If your child has that, they could qualify for a lower interest rate than the 7.00% that Parent PLUS Loans have. Plus, they could choose new repayment terms of shorter or longer length.
This transfer of responsibility could be a good option if you’re struggling with repayment, but your child is now graduated and doing well financially. It’s important to know, though, that refinancing federal student loans turns them into private ones.
As a result, your child will lose access to federal protections, like income-driven repayment plans and forbearance, as well as forgiveness programs like PSLF. So if you want to retain federal protections, refinancing probably isn’t the best move.
But if you don’t need those options, refinancing could reduce your costs of borrowing with a lower student loan interest rate.
Be ready to play the long game for Parent PLUS Loan forgiveness
Parent PLUS loan forgiveness is possible, but it takes a long time. You must consolidate your loans, sign up for ICR, and either make payments for 25 years or work in public service for 10 years.
If these avenues feel too burdensome, you might opt to stay on the standard plan instead. Alternative options, like building a new source of income or getting student loan assistance from your employer, could help you get rid of your Parent PLUS Loans even faster.
Melanie Lockert contributed to the reporting for this article.
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1 Important Disclosures for Earnest.
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 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% 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 Month/Day/Year, 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 08/21/18. 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 firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 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
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). 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 2.28% effective October 10, 2018.
5 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3|
|2.47% – 6.30%1|
|3.02% – 6.44%2|
|2.69% – 7.21%4|
|2.79% – 8.39%5|