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.
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)
- Revised Pay As You Earn (REPAYE)
- 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…
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 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. Unfortunately, consolidation will not help Parent PLUS borrowers gain eligibility for the more common, and preferable, IBR, REPAYE and PAYE plans.
Important Warning on ConsolidationEven 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.
- Consolidation Restarts the Forgiveness Clock – A consolidated loan is a new student loan with a fresh forgiveness clock. Accidentally consolidating a second time could erase prior eligible payments.
- 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. Be sure to always keep Parent PLUS loans separate from all other federal student loans.
Borrowers just need to use this approach…
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 call for borrower 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.
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.
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.
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 many ways to repay Parent PLUS loans.