How Parent PLUS Loan Forgiveness Works – Forbes Advisor

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Parent PLUS loans are a popular option for those sending their kids off to college. These federal loans, which are offered to parents of undergraduate students, can make college more affordable in the short term.

Parent PLUS loans come with higher interest rates and fees than federal loans that undergraduates can take out on their own, and they have fewer repayment options. But they’re eligible for many of the same forgiveness programs as other federal loan types.

For example, parent PLUS loans qualify for forgiveness if you choose a certain federal repayment plan, if you work in certain jobs or if you’re permanently disabled. Here are the that you may be able to receive forgiveness as a parent PLUS loan borrower.

What Is Parent PLUS Loan Forgiveness?

Like other types of student loan forgiveness, parent PLUS loan forgiveness cuts short your repayment obligations. If you meet certain requirements, you can stop repaying your debt and have the remaining balance wiped away.

Parents who take out PLUS loans must qualify for loan forgiveness based on their own circumstances, not those of the child for whom they borrowed loans. For instance, the Public Service Loan Forgiveness (PSLF) program provides loan forgiveness after a certain time to borrowers who work in government and nonprofit jobs. To get parent PLUS loans forgiven under this program, the parent—not the student—must work in a qualifying job.

Forgiveness for parent PLUS loans also often requires actively confirming your eligibility and submitting an application. In certain instances, though, the government may contact you to explain that you’re eligible for a forgiveness program.

3 Options for Parent PLUS Loan Forgiveness

There are multiple to access parent PLUS loan ways of forgiveness, including as a result of the repayment plan you choose or your career path.

1. Income-contingent Repayment

Student borrowers can choose from four different income-driven repayment (IDR) plans, which limit monthly federal student loan bills to a percentage of income and lead to forgiveness after 20 or 25 years. Parent borrowers, however, have access to just one IDR option: income-contingent repayment (ICR).

Under this plan, parent PLUS loans are forgiven after 25 years of repayment. To qualify, borrowers must convert their PLUS loans into a federal direct loan by consolidating their student debt. You can complete the application to consolidate parent PLUS loans online at StudentAid.gov. After consolidating, you can sign up for ICR online for free.

If you sign up for ICR now, according to current IRS rules, it’s possible you’ll have to pay income tax on the amount that’s eventually forgiven. But these forgiveness regulations may change before your repayment term ends.

2. Public Service Loan Forgiveness

The Public Service Loan Forgiveness (PSLF) program provides tax-free forgiveness to borrowers who work full-time for an eligible nonprofit or the government. Borrowers must make 120 qualifying payments before they can apply for forgiveness. While working towards PSLF, you’ll make payments using an income-driven repayment plan, which allows monthly bills low and for the maximum possible forgiveness.

As a parent PLUS borrower whose job makes you eligible for PSLF, there are a few extra steps to take to participate. You’ll need to consolidate PLUS loans into a direct consolidation loan, for example, and then choose ICR as your repayment plan. If you already work for a qualifying employer when your child leaves school and enters repayment, you could receive forgiveness in as early as 10 years, one of the shortest forgiveness time frames available.

3. Discharge Options for Parent PLUS Loans

The terms “forgiveness” and “discharge” have the same essential meaning, but they’re used to refer to different conditions for loan cancellation.

When your loans are erased because you work in a certain type of job, the government refers to that as forgiveness, while the situations below are considered circumstances for discharge. In both cases, you’re no longer required to make loan payments and your repayment is considered complete. Here are the cases when parent PLUS loans are eligible for discharge.

  • Discharge due to death. If the parent PLUS borrower or the child for whom they took out a loan dies, the loan is forgiven. To receive the discharge, documentation verifying the death must be provided to the student loan servicer.
  • Total and permanent disability (TPD). If the parent borrower becomes totally and permanently disabled, their loans may be discharged. The government reaches out to eligible Social Security recipients with student loans to let them know TPD is available to them, but others can apply proactively through the federal website DisabilityDischarge.com.
  • Closed school discharge. Parents may also be eligible for discharge if their child’s school closed before the child could complete their degree program. Contact your student loan servicer to identify whether you’re a candidate.

Alternatives to Student Loan Forgiveness

If the options above aren’t useful for your situation, there are other ways to limit the amount you pay toward a PLUS parent or take a break from payments total if you need to.

Deferment and Forbearance

Parent borrowers can postpone student loan payments through federal deferment and forbearance programs, though interest will continue to accrue. One exception is the government’s Covid-19 forbearance, set to expire on January 31, 2022. Parent PLUS borrowers do not currently have to make payments, and interest is not being collected.

When the Covid-19 forbearance ends, parent PLUS borrowers can apply to put their payments on hold through general forbearance, which covers a wide range of circumstances, or deferment. For PLUS borrowers, the two programs function the same way, but they apply to different situations. In case of unemployment, for example, you can put loans into deferment for up to three years. Certain types of forbearance, such as a mandatory forbearance, can be used for longer periods.

The important element to know about deferment and forbearance is that they may not be difficult to get, but accrued interest can add up fast—and make repayment much more difficult in the long run. Opt for them only if you need help for a short time and don’t expect your loans to be unaffordable for an extended period.

Student Loan Repayment Assistance Programs

If you don’t find any federal options that can help you with your parent PLUS loans, look elsewhere. Many state agencies offer repayment programs for student loans. You usually have to work in certain careers, like a teacher, nurse, doctor or lawyer. Additional requirements often apply, such as working in a rural or high-need area for a specific number of years. While this isn’t the same as forgiveness, you can earn free money to pay off your student loans faster.

Student loan repayment is becoming more popular among the private sector as well. Companies are benefit offering loan repayment as a benefit for employees. If you’re in the market for a new job, research employers that offer loan repayment as a perk.

Student Loan Refinancing

If you’re in a strong financial position—meaning you have a good or excellent credit score and solid income—student loan refinancing can help you save money on interest. When you refinance, a private student loan company pays off your PLUS loans and replaces them with a new private student loan, ideally at a lower interest rate. That can lead to lower monthly payments or less paid toward your loans in total.

Parent borrowers are often good candidates for refinancing because they are more likely than student borrowers to have a stable financial foundation. That means they could qualify for lower interest rates than the federally set PLUS loan rate they originally received.

Refinancing comes with some drawbacks, though. Since the loan will no longer be federal, you won’t have the option to switch to an ICR plan if you need to lower payments, and forbearance is often limited to 12 or 24 months total throughout the loan term. Most refinance lenders also don’t offer forgiveness. If getting your loans forgiven is a top priority, it may be best to keep your loans as they are and opt for a federal program that can lead to cancellation.

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