There is a debate about who should be expected to pay for Parent PLUS loans. Those looking at things from a moral standpoint might reach a different conclusion than those looking at it from a legal point of view.
What isn’t up for debate is the fact that paying off Parent PLUS loans can be difficult, and at times, complicated. Regardless of who is paying the bill, children who benefited from a Parent PLUS loan should help their parents navigate repayment.
Parent PLUS Repayment Basics
Paying off Parent PLUS loans can be more complicated than other student loans. Repayment of Parent PLUS loans is also difficult because these loans carry the highest interest rates of all federal student loans.
The typical repayment plans for a Parent PLUS loan are the standard repayment plan, the graduated repayment plan, and the extended repayment plan. The downside to these repayment options is that monthly payments can be very high for borrowers with larger amounts of debt.
Borrowers can repay Parent PLUS loans on an income-driven repayment plan by enrolling in the Income-Contingent Repayment (ICR) Plan. However, this enrollment first requires that borrowers go through federal direct consolidation. The process isn’t difficult, but borrowers should be careful to follow the proper procedure.
The Role of the Student/Child in Repayment
From a legal standpoint, the child has no responsibility for repayment. The Parent PLUS loan is in the name of the parent, it is on the parent’s credit report, and it is the parent who is obligated to pay off the debt.
One area where children can be especially helpful in navigating the government red tape. Student loan servicers are a great source of frustration for many millennials, but for older parents who are less tech-savvy, things can be overwhelming.
Children can help explain the different repayment plans and assist with getting signed up. Parent PLUS loan borrowers who are approaching social security age should make sure that they avoid and social security garnishments. Most borrowers on social security should be able to get $0 monthly payments, provided that they take the necessary steps.
Put simply, student loan repayment can be a minefield. Having two people working is much better than just one.
Don’t Forget About Forgiveness
Borrowers with large amounts of Parent PLUS debt and limited income may fear that they will never be able to pay off the loans.
The good news is that Parent PLUS loans have two paths to student loan forgiveness.
The quickest route to forgiveness is the Public Service Loan Forgiveness (PSLF) Program. Parents who work for the government or a 501(c)(3) non-profit can have their loans forgiven after 10 years worth of “qualifying payments”. Qualifying for PSLF can be especially complicated for Parent PLUS loan borrowers, so it is critical to research the process of getting Parent PLUS loans discharged via Public Service Loan Forgiveness.
Another option for Parent PLUS loan forgiveness is to qualify by making 25 years worth of payments on the ICR plan. This option takes an extended amount of time, but it means that all Parent PLUS loan borrowers have a path to loan forgiveness.
Finally, in the event of the death of the Parent PLUS loan borrower or the student for whom the loan was borrowed, the loan will be discharged.
Borrowers who are confident the will be able to pay the Parent PLUS loan off in full may elect to refinance the loan with a private lender. Not all refinance companies are willing to refinance Parent PLUS loans, but we have confirmed that SoFi is one lender that does provide this service.
The major downside to refinancing is that monthly payments based upon income are no longer an option. Additionally, most private lenders do not offer any loan forgiveness program. Thus, this option should only be considered by those confident in their ability to pay off the loan in full and looking for a reduced interest rate.
Who Should Make the Parent PLUS Loan Payments?
Now that we have covered the mechanics of Parent PLUS loan repayment, it is worth covering an issue that is far less black and white.
Even though the parent bears the legal responsibility to pay off the debt, it is the child who benefitted from the loan.
It is the opinion of this student loan expert that one of the most important considerations is the conversations and expectations that were discussed at the time the loan was borrowed. Some Parent PLUS loans are borrowed and both the parent and the child have the understanding that the parent will be repaying the loan. In other families, the parent borrows the loan but does so with the expectation that the student will help repay the debt once they finish school.
When there is confusion, the most important thing is to have an open dialogue. I’ve received numerous emails from readers who are feuding with a family member over repayment of student debt. Feelings can be hurt when dealing with financial matters, so it is critical to have any conversation with an open mind.
Researching repayment options ahead of time can also make a big difference. Handling student loans is far less scary if you understand your options. Don’t let student debt ruin an important relationship with a loved one.
Keep Children Involved in Repayment
If eliminating Parent PLUS loans is a family objective, deadlines are less likely to be missed, and mistakes are less likely to be made.
Parent PLUS loans can be the source of a major family rift, or they can be a challenge conquered as a team.