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 apply 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 common for many borrowers:
- 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 have loan payments but are thinking about retirement
In this case, the reader’s dad was coming up on his retirement age, but thinking about sticking around a little longer to have 10 years in to qualify for the public service student loan forgiveness.
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)
- Income Contingent Repayment (ICR).
If you are on the 10 year plan, forgiveness doesn’t do you much good, because after 10 years of payment, your loan is paid off.
The problem for Parent PLUS loan borrowers is that these loans are not eligible for IBR, PAYE or ICR. That 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…
Even if you have just one Parent PLUS loan, you can consolidate the loan into a Federal Direct Consolidation loan. This may seem silly, because consolidating the one loan doesn’t change the interest rate, it really is nothing more than a name change.
However, that name change makes a big difference. Even though the consolidated loan contains a Parent PLUS loan, as a consolidated loan, it is eligible for the Income Contingent Repayment Plan. (Note: this consolidated loan will still not be eligible for the more common IBR and PAYE plans).
Using this approach…
The Steps Towards Parent PLUS Public Service 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
The Bottom Line
If having the necessary step of consolidation to be eligible seems ridiculous, it is because it is. This unnecessary red tape will likely prevent many families from having their student loans forgiven.
However, red tape or not, it is possible to have Parent PLUS loans forgiven… you just have to jump through a bunch of 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.