Parent PLUS loans are in many ways the black sheep of the federal student loan system. Federal loans are usually considered to be far superior to private loans, in part because of the great repayment plans and forgiveness programs that are available through the federal government. Unfortunately, many of these perks do not extend to Parent PLUS loans.
This week I received a reader email asking about Public Service Loan Forgiveness for his father. This is a situation that is probably familiar to many borrowers:
- The parent works in a public service job (such as a government or 501(c)(3) position).
- They took out a Parent PLUS loan to help pay for school.
- Parents are making loan payments but are thinking about retirement.
In this case, the reader’s dad was coming upon his retirement age, but thinking about sticking around a little longer to qualify for Public Service Loan Forgiveness (PSLF).
The Problem with PSLF for Parent PLUS Loans
In order for a student loan to qualify for Public Service Student Loan Forgiveness, the borrower must make 120 payments (10 years worth) and be enrolled in one of the following repayment plans:
- the standard 10-year plan
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Saving on A Valuable Education (SAVE)
- Income-Contingent Repayment (ICR).
If you are on the standard 10-year plan, forgiveness doesn’t do you much good because your loan is paid off after 10 years.
The problem for Parent PLUS loan borrowers is that these loans are not eligible for IBR, REPAYE, SAVE, PAYE, or ICR. This means that even if you are in a public service job, payments on a Parent PLUS loan will not be helping you towards student loan forgiveness.
However, there is one exception.
The Exception
Borrowers can consolidate their Parent PLUS loans into a Federal Direct Loan in order to gain eligibility.
Even if you have just one Parent PLUS loan, you can consolidate the loan into a Federal Direct Consolidation loan through the Department of Education. This may seem silly because consolidating the one loan doesn’t change its interest rate. In all practicality, it really is nothing more than a name change.
That name change makes a big difference, however. Even though the consolidated loan contains a Parent PLUS loan, it is eligible for the Income Contingent Repayment Plan.
However, consolidation will not help Parent PLUS borrowers gain eligibility for the more preferable plans, such as SAVE. The only exception to this rule, the double consolidation loophole, requires completing the process by July 1, 2025.
Important Warning on Consolidation: Even though Federal Direct Consolidation is an essential step for Parent PLUS Loans to become eligible for PSLF, borrowers should be very careful with consolidation.
There is no Undo – Once loans have been consolidated, there is no way to reverse the process. This means it is critical to avoid any potential mistakes.
Only Include Parent PLUS Loans – Some borrowers have Parent PLUS loans that were borrowed for their child as well as traditional federal student loans in their own name. If these two loan types get consolidated together, the combined loan will have limited eligibility for repayment plans and other federal programs, which can mean higher payments for the borrower. In most cases you will want to keep Parent PLUS loans separate from all other federal student loans.
The Steps Towards Parent PLUS Public Service Loan Forgiveness
- Consolidate your Parent PLUS loan(s) into a federal consolidation loan.
- Sign up for the ICR Plan with your lender.
- Make 120 certified payments while in a public service position.
- Apply to have the remainder of the debt forgiven.
Step number one requires going through the consolidation process just once. However, steps two and three require action on a yearly basis.
Signing up for ICR means that borrowers must certify their income every year. The income certification process usually takes very little time and can be completed online. This needs to happen each year so that the Department of Education can increase or lower payments based upon changes in income. Borrowers have the option of authoriziting the IRS to share tax information yearly to automate the process, but borrowers will still want to watch things closely to make sure payments are properly calculated.
Step three is best accomplished by sending in an employer certification form on a yearly basis. Though yearly certification of an employer’s eligibility isn’t explicitly required, it is a best practice for borrowers. This helps the borrower keep track of payments towards the required 120 and helps ensure that the borrower is meeting other PSLF eligibility criteria.
Also, keep in mind that when you complete step four, you must still be employed by an eligible employer. If you have left your job at a PSLF employer, you won’t get loans forgiven, even if you have worked the required 10 years.
The Bottom Line
If the requirement to consolidate Parent Plus loans in order to be eligible for PSLF seems ridiculous, that’s because it is. This unnecessary red tape will likely prevent a number of families from achieving student loan forgiveness.
However, red tape or not, it is possible to have Parent PLUS loans forgiven… you just have to jump through the hoops.
If you are thinking about going this route, be sure to work closely with your lender to make sure you are dotting all your i’s and crossing your t’s. A mistake in paperwork can be the difference between a huge pile of debt being forgiven or not.
If you decide that Public Service Loan Forgiveness might not be the best option to repay your Parent PLUS loans, the good news is that there are other ways to repay Parent PLUS loans.
My husband and I file a joint tax return. My son has 1 more year in college and I have the parent plus loans in my name. Would it be better if we file taxes seperately? Will I get a lower payment if I do that?
It is possible that you will be better off filing seperately, but it depends on a number of different factors.
First, do you plan on signing up for an income-driven repayment plan? With Parent PLUS loans the only available IDR plan is the ICR plan.
Second, there are tax consquences to filing seperately. This is something you will want to discuss with your tax planner. Generally speaking, the idea is to compare the potential savings from lower payments against the potential extra spending on taxes.
I’ve previously written an article that breaks down the analysis for couples who are considering filing taxes seperately. Hopefully you fill find some useful insight in there.
So, we have a Parent Plus loan but it is in my name and not my husbands. Does that matter? He has been in public service with our city ems for 30 years.
Unfortuantely, if the loan is in your name, your husband’s work in Public Service won’t help get the debt forgiven.
So if I consolidate the 100,000 of my sons student loans under the PSFL my interest rate will be higher and because (on paper) my husband makes good money our monthly payment of 1200.00 probably will go up?
If you have Parent PLUS loans and consolidate them to sign up for ICR and pursue PSLF, your monthly payment will be based on your husband’s income if you file taxes jointly. If you file seperately, it will be based on just your income.
No matter what repayment plan you select, your interest rate shouldn’t change. The repayment plan will impact how much you pay each month and how long it takes to elimiate the debt, but repayment plans don’t change interest rates on the loan.
Is there any way to know how they base it on your income. He made a lot of money last year. Kind of a fluke. He made about 200,000 last year and we also have another child in school who has one year of federal loans so far. I just don’t want to consolidate and make them even more because we are not paying these our son is
If you look at your most recent tax return, the number they use is the AGI.
I’d also note that the Income-Driven Repayment Plans are not the only option. You can call your servicer, and they can tell you what the monthly payments would be on the various repayment options.
I’m a parent of a new college student and have taken a Parent Plus loan. Next year, I have a second child entering college. I’ve recently returned to working in nonprofit, where I will most likely remain for the next 10-15 years. Should I consolidate now to the Federal Consolidated Loan? Or, do I wait?
If you consolidate now, you can start making progress toward PSLF for some of your debt. However, you will still have to consolidate again with the other debt.
I’d suggest reading up on how the forgiveness timeline works with multiple loans at different counts.
I’d also suggest calling your servicer do discuss the various options you are considering.
If this situation were flipped and the student (child) remains in public service, but the parent is not, then PSLF does not apply, correct?
Correct
So the only way a payment qualifies if it was made on the an income based plan, which means signing up for an income based plan now would leave 10 more years of payments before anything would be forgiven.
Too bad this was not in existence when I went into teaching. I would have taken advantage of it.