Parent PLUS Loan Forgiveness: 7 Ways to Forgive Your Loans
If you helped your child pay for college and are struggling with loan repayment, learn about Parent PLUS Loan forgiveness and other strategies to reduce the debt.
When students cannot get enough financial aid or student loans, they often turn to parents to fill the gap. These parents can take out Parent PLUS Loans to help their children afford college tuition and other school expenses. But what happens if the parents cannot afford those payments after their child graduates? In this guide to Parent PLUS Loan forgiveness, you'll learn what Parent PLUS Loans are, how to pay them back and how to qualify for loan forgiveness.
What are Parent PLUS Loans?
A Parent PLUS Loan is a federal student loan for parents to help their children afford college. These federal government loans are offered by the U.S. Department of Education and are also known as Direct PLUS Loans. The loan is taken out in the parent's name, and the parent is financially responsible for the loan, even though it is to pay for the child’s higher education. Many parents take out these loans when the child cannot cover college expenses with scholarships, grants, and subsidized and unsubsidized student loans.
To qualify for federal student aid and receive a Parent PLUS Loan, you must be the biological or adoptive parent of the student and not have an adverse credit history. Grandparents and legal guardians are not eligible for Parent PLUS Loans, even if they are the primary caretakers of the child.
There is no cap on your loan amount. You may borrow up to the total cost of attendance for school for undergraduate students, minus any other financial aid that your child receives. That includes tuition, books, room and board, and other expenses, including transportation.
Do parents have to pay back Parent PLUS Loans?
Yes, parents are expected to pay back Parent PLUS Loans. Like most loans, Parent PLUS Loans require parents to start making payments as soon as the money is disbursed.
However, you can request a federal student loan deferment while your child is enrolled at least half time. If you qualify for deferment, you must start making payments six months after your child graduates or drops below half-time enrollment.
Interest begins accruing immediately upon disbursement of the loan proceeds. The interest continues to accrue for parents in deferment, which means that the interest is capitalized and your loan balance increases over time.
How long do you have to pay back Parent PLUS Loans?
Parent PLUS Loans have three repayment options to choose from:
- Standard repayment plan: Fixed payments for up to 10 years.
- Graduated repayment plan: Payments increase every two years and are made for up to 10 years.
- Extended repayment plan: Fixed or graduated payments made for up to 25 years.
If parents choose to consolidate their Parent PLUS Loans, they may be eligible for Income-Contingent Repayment.
Are Parent PLUS Loans eligible for COVID-19 relief?
Yes, Parent PLUS Loans are eligible for a suspension of loan payments, a 0% interest rate and stopped collections on defaulted loans through Aug. 31, 2022. Automatic payments scheduled during this period are automatically suspended. However, you can make manual payments electronically or by mail during this period. Additionally, you may contact your loan servicer and request that automatic payments be reinstated.
The full amount of payments made during this period is applied to your principal balance to reduce the amount owed (once interest and fees accrued prior to March 13, 2020, are paid off). For borrowers who can afford the payments, this is an excellent opportunity to reduce their balance and future interest charges.
What happens if a parent doesn't pay a Parent PLUS Loan?
As with any loan, if you do not make your Parent PLUS Loan payments, there are multiple negative outcomes. First off, late payments are reported to the credit bureaus, which could affect your credit. The interest will continue to accrue. Late fees may also be charged to your account. And you could lose eligibility to borrow again in the future.
After 270 days of missed payments, your loan is in default. When that happens, the government can garnish your wages, confiscate tax refunds and withhold a portion of your Social Security benefits. Loans in default are not eligible for deferment, forbearance or conversion to other repayment plans.
Can Parent PLUS Loans be transferred to the student?
No, the lender approved the loan based on the parent's credit score and other qualifications. The loan obligation remains with the parent and cannot be transferred to the student. While the student loan payments are the parent's responsibility, there is nothing stopping students from making Parent PLUS Loan payments on behalf of their parents.
Can a Parent PLUS Loan be discharged?
Yes, it is possible for a Parent PLUS Loan to be discharged in eligible situations, including the following:
- The school closed before your child could complete their program.
- Your eligibility to receive the loan was falsely certified by the school.
- The application was forged.
- Your child withdrew from the school, but the school didn't refund the money that it was required to pay.
- The parent or the student passed away.
- You have a total and permanent disability.
- You proved undue hardship through the bankruptcy court.
Do Parent PLUS Loans qualify for forgiveness?
Student loan forgiveness isn't just for students. Parent borrowers may also qualify for forgiveness of their Parent PLUS Loans.
Who qualifies for loan forgiveness?
Just like student borrowers, there are several programs that enable Parent PLUS Loan forgiveness. These are the most common loan forgiveness program options that you may qualify for:
- Income-Contingent Repayment (ICR): Available after consolidating into a federal Direct Consolidation Loan. ICR plans are capped at 20% of your discretionary income, and the unpaid balance is forgiven after 25 years.
- Public Service Loan Forgiveness: Borrowers working full time in a qualifying nonprofit or public service job are eligible for forgiveness after making 120 qualifying payments.
- Temporary Expanded Public Service Loan Forgiveness: If some of your payments were made under a graduated or extended repayment plan while you worked an eligible public service job, you may also qualify for forgiveness.
- Federal agency loan repayment: Some federal agencies pay Parent PLUS Loans as a recruitment or retention bonus.
- Military forgiveness: Borrowers may qualify for loan forgiveness through the military based on their service or their child’s service.
- State student loan forgiveness: To encourage people to move to a particular state, some programs offer student loan repayment assistance to borrowers who move to certain areas within a state.
- Employer-paid student loan assistance: Many employers offer student loan repayment assistance to recruit or retain employees in addition to matching contributions for payments made while working for the company.
If you don't qualify for one of those loan cancellation programs, you may find relief by refinancing your Parent PLUS Loans using an organization such as Juno. You may be able to lower your monthly payment through a refinance. When you refinance, you get a lower interest rate, stretch out the term or select a graduated repayment schedule.
The bottom line
Many parents who helped their children cover the cost of college are facing financial difficulties with loan repayment. It is possible to qualify for Parent PLUS Loan forgiveness to remove this financial burden. There are several strategies that borrowers can use to eliminate this debt, but qualifications vary by program. If there is a balance left over or you don't meet the criteria, consider refinancing to lower your monthly payment to make it more affordable.
Lee is a travel writer and podcast host based in Nashville, Tennessee. Lee spent 18 years in banking and investments and now uses that insider knowledge to write about credit cards, travel, and other personal finance topics.