As a student loan advisor, I continually interact with families seeking ways to support their children’s dreams of a college education.
A popular yet sometimes misunderstood tool at their disposal is the federal Parent PLUS loan. When properly used, these loans can bridge the financial gap and make a college education affordable.
However, the key lies in understanding both the benefits and potential pitfalls of these loans to make informed decisions.
What are Parent PLUS Loans?
Parent PLUS loans are federal student loans available to the parents of dependent undergraduate students. The U.S Department of Education is the lender for these loans.
What differentiates these loans from others is that they allow parents to borrow up to the full cost of their child’s education, minus any other financial aid received.
Why Some Parents Hesitate
The decision to apply for a Parent PLUS loan can be daunting for most parents. High-interest rates and substantial fees attached to these loans, charged by the Department of Education, are usually the initial deterrents. Parents may also feel discouraged by the required credit check and the potential of incurring substantial debt, possibly extending into their retirement years.
In the eagerness to support their children’s education, some parents can unknowingly land themselves in significant financial trouble. Despite these initial apprehensions, it is important to note that these loans, when managed correctly, can be an effective tool to fund higher education.
The Silver Lining: Income Contingent Repayment (ICR) Plan
Though these deterrents exist, there is a ray of hope hidden deep within the Department of Education’s student loan website: the Income Contingent Repayment (ICR) plan. Listed on the Repayment Plans page, this plan provides significant assistance to a considerable segment of Parent PLUS loan borrowers.
Access to ICR and its benefits can be obtained by consolidating Parent PLUS loans into a Direct Consolidation Loan, a free service provided by the Department of Education. Under the ICR plan, borrowers only pay a small fraction of their taxable income each month, substantially lowering their financial burden.
Moreover, non-taxable income, such as Social Security, disability benefits, and child support, is not included in the calculation.
Understanding the ICR Plan
An example that showcases the effectiveness of the ICR plan is how borrowers with minimal taxable income can have monthly payments as low as zero dollars. The ICR repayment period spans 25 years, after which the remaining principal and interest balance are forgiven.
However, it’s crucial to note that under current rules, the forgiven amount would be taxed at the borrower’s future tax rate.
Additional Benefits: Public Service Loan Forgiveness Program
Another significant advantage of the ICR plan is the eligibility it offers for the Public Service Loan Forgiveness Program (PSLF). This program provides loan forgiveness to those employed in public service jobs.
Therefore, parent borrowers working in these roles may have a substantial portion of their loans forgiven in just ten years, further lightening their financial load.
Navigating Potential Pitfalls
Like any federal college loan repayment program, the ICR plan comes with its potential pitfalls. To ensure a smooth journey, borrowers need to diligently follow rules and stay updated with paperwork.
One crucial rule is to annually update your tax information and family size with your loan servicer. Keeping this information current is a key part of staying on track with the loan repayment process.
While the thought of accepting a Parent PLUS loan might initially appear daunting, gaining a comprehensive understanding of the various repayment options can significantly alleviate associated financial stress.
Engaging with a student loan advisor could be your next powerful move. These advisors offer a tailored approach, providing guidance that aligns with your unique financial standing and enabling you to make decisions with confidence.
Not only will they accompany you throughout the application process, but they will also engage in meaningful discussions about suitable repayment plans, and potentially uncover other alternatives to Parent PLUS loans that could better serve your circumstances.
Frequently Asked Questions
Do Parent PLUS Loans qualify for loan forgiveness?
Yes, Parent PLUS Loans do have the potential to qualify for loan forgiveness under certain circumstances. While these loans are not directly eligible for most income-driven repayment plans that lead to loan forgiveness, they can become eligible by being consolidated into a Direct Consolidation Loan. Once consolidated, these loans can be repaid under an Income-Contingent Repayment (ICR) plan. After 25 years of qualifying payments under ICR, the remaining loan balance can be forgiven.
Are Parent PLUS Loans eligible for Public Service Loan Forgiveness (PSLF)?
Similar to loan forgiveness, Parent PLUS Loans can become eligible for PSLF, but not directly. The loans first need to be consolidated into a Direct Consolidation Loan. The consolidated loan can then be repaid on an Income-Contingent Repayment (ICR) plan. If the borrower works full-time for a qualifying public service employer and makes 120 qualifying payments, the remaining balance will be forgiven under PSLF.
Will Parent PLUS Loans be forgiven?
There’s no straightforward answer as it largely depends on individual circumstances. If the parent borrower fulfills specific criteria – such as making 25 years of qualifying payments under an Income-Contingent Repayment (ICR) plan or making 120 qualifying payments while working for a public service employer – the remaining balance on the Parent PLUS Loan could be forgiven. It’s crucial to stay informed about any potential policy changes regarding student loan forgiveness that could impact Parent PLUS Loans.