I know the struggle parents. You may have one or two kids and had to take out a Parent PLUS Loan as a solution to help your children get ahead in college. However, that good deed can really hurt your finances, especially if you're already in debt.
I was in the same position, but I didn't want to have this looming debt over my head for decades. I knew there had to be ways to get Parent Student Loan Forgiveness — there must be some ways that can lead to partial, or even full, cancellation of this student loan debt.
Turns out, I was right.
In this article, I will share 4 tricks to get student loan forgiveness for Parent PLUS Loans.
What are Parent PLUS Loans?
Direct PLUS Loans are federal loans that parents of dependent undergraduate students can use to help pay for college or career school. PLUS loans can help pay for education expenses not covered by other financial aid.
Parent PLUS Student Loan Forgiveness
Non-profit private colleges now charge a minimum of $46,950 for fees, room and tuition and these costs are skyrocketing by the day.
Many parents at this point will jump in to save the day. Their dream is for their child to have a brighter future than they have had. Parents know this future can be built on the bedrock of solid tertiary education. So, some will tap on home equity and raid their retirement funds. But if you do not have such assets, you will go into private debt or get a Federal Parent Plus Loan.
The outcome of these decisions has a very bleak outlook for you. While a student can get a student loan, a parent on the verge of retirement has no chances of getting a retirement loan.
So most parents getting into debt to finance their children's education are most probably going to be a financial burden to them in the future. Unfortunately, research shows that Millennials have slim chances of out-earning their hard-working parents, so taking on that debt yourself might be an impossible task.
But here is how you can fight back:Most parents getting parent plus loans debt to finance their children's education are likely going to be face a financial burden to them in the future.
1. You could get Parent PLUS Loan forgiveness through Income-Contingent Repayment (ICR)
If you need help repaying your Parent PLUS Loans, your first option would be looking into the Income-Contingent Repayment (ICR) plan.
This will be your best income-driven choice if you have a Parent PLUS loan or loans or a consolidation loan that includes Parent PLUS Loans. Or if you want to slightly lower payments to pay less in interest.
This plan extends your repayment terms to 25 years, so you will pay less each month and if you still have a balance at the end of the 25 years — that amount will be forgiven.
The Income-Contingent Repayment (ICR) Plan is a repayment plan with monthly payments that are the lesser of (1) what you would pay on a repayment plan with a fixed monthly payment over 12 years, adjusted based on your income or (2) 20% of your discretionary income, divided by 12.
If you’d like to repay your federal student loans under an income-driven plan, You need to complete the Income-Driven Repayment Plan Request on StudentAid.gov and provide specific information to qualify.
If you choose to go this route, you will have to consolidate your loan through StudentLoans.gov and then talk to your loan servicer and choose ICR. After making payments for 25 years, your loans will be forgiven. To get a sense of what your new monthly payment would be, you can use the Repayment Estimator on the Office of Student Aid's website.
Any loans that are forgiven will still be considered taxable income.
2. You might also qualify for Public Service Loan Forgiveness (PSLF)
Your second option is getting qualified for Public Service Loan Forgiveness (PSLF). You would be eligible if you work full-time for the government or nonprofits and make payments for 10 years, then you can get your loans forgiven. Not bad, right?
If you went this route, your forgiven loans at the end of the 10 years are not considered taxable income. If you are interested, simply apply for a Direct Consolidation Loan through StudentLoans.Gov and get on an ICR plan to get started.
3. Your career might qualify you for repayment assistance programs
Depending on your career, other professionals in certain fields may be eligible for state-run repayment assistance programs. You can see a full list of over 120 student loan repayment assistance programs here.
It also doesn't hurt to check with your companies benefits, some offer to help employees pay off their loans. So if you have a career or employer that can help you eliminate your Parent PLUS Loans, take advantage of it.
4. You could refinance Parent PLUS Loans in your child’s name
If you don't have a career or employer who can help you get rid of your Parent PLUS Loans and ICR and PSLF seems like it'll take too long for you to get debt free — you have another option.
You can transfer the loans to your child through student loan refinancing.
Most of the popular student loan refinancing companies include:
Transferring the loans to your child is possible, as long as they apply for the student loan refinancing, have a steady job, and a solid credit score.
The benefit of doing this would mean a lower interest rate than the 5.30% (or higher) rate that the Parent PLUS Loans have. To chalk it up, they'll also be able to choose new repayment terms that are longer or shorter.
Keep in mind that if your child refinances they will lose federal protections such as ICR plans, forbearance and PSLF. So if you want to keep those protections, refinancing isn't a good idea.
Other ways your parent PLUS loans may be discharged
According to a recent NerdWallet report, there are a few other circumstances that could cause your Parent PLUS Loans to be discharged:
- You die or the child you borrowed for dies.
- You become totally and permanently disabled.
- Your loan is discharged in bankruptcy.
- The student you borrowed for couldn’t finish a degree because the school closed.
- The school falsely certified your eligibility to receive the loan.
- Cases of identity theft in which your eligibility to receive the loan was falsely certified.
- The student you borrowed for withdrew from school, but the school didn’t refund your loan money it was legally required to repay.
Why do parents get into debt for their children's education?
- Thanks to student loans, Millennials are now beginning their adult lives with a negative average net worth. With an average student loan ranging from $37,172 in 2016, it is understandable that most parents hate the notion of letting their kids start their life out of debt.
- Kids who finance their college education definitely have to work through their college lives. Most parents would rather have their kids more focused on better GPAs than finances.
- If you have to work to fund your education chances are that college life is not really going to be the best time of your life. You will probably miss out not only on your social life but some classes too. Your parents might get into debt just to cushion you from the harsh realities of working through college.
- Your parents might still be paying off their own student loans. This makes them very committed to ensuring that you stay off the lifelong financial burden unfortunately by taking on more debt themselves.
- A simple survey shows that 28% of all parents have nothing saved for a college kitty. These parents will end up taking a loan because they have to, at the rush of getting kids into college.
- Most parents have never heard of a 529 plan. These tuition plans are usually sponsored by educational institutions, states or their agencies to encourage a culture of saving for future educational costs.
Why do parents have trouble paying Parent PLUS Loans?
Parent PLUS Loans
In the 80s, the Parent Plus loan had caps on borrowing, but come 1993, most of those limits were lifted. Now your parents are eligible to up to your college's cost of attendance. Most parents get a pleasant surprise on the realization that the stringent credit check rules that apply to other personal loans do not apply for Parent Plus. They can actually borrow more than they can afford to pay.
And without large dings on their credit, your parent can get a loan approval of up to tens of thousands of debt. You can see where this is going. With no caps on borrowing and a continual increase in tuition fee charges, parents have dug themselves into a tight spot. This situation has thoroughly worsened the loan repayment outcomes with up to 3.4 million parents now owing up to $87 billion in Parent PLUS loans. This is a hefty 6% of all outstanding student federal loans.
This outcome should not come as a surprise though. These loans have a substantial 7.6% interest rate and a 4.248% origination fee. Now, a student who borrows a federal student loan has many borrower protections that a parent cannot enjoy. This means that on default, your parent's wages and their social security benefits will be garnished. Their tax refunds could be confiscated too.
The major problem with Parent Plus loans is that a parent cannot easily transfer the responsibility of payment to their child. They could transfer them personally or through rare student loan consolidations, but this means losing all relief options and federal protection as well. The loan could lose its public service debt forgiveness opportunity and other lower payment options.
They are part of the sandwich generation
Want to know if your parents are part of the sandwich generation? Are they not only supporting you but also taking care of their parents?
Americans today owe over $13.15 trillion in debt. A majority of American adults are debtors, with 80.95 of all baby boomers, a group already in retirement, in debt. The Gen Xers have 79.9% of their population in debt, and 81.5% of all Millennials too have found their way into the debt trap.
With little left to save after meeting all their responsibilities, parents who are willing to sacrifice and take on loans for their children are doing so with their own unpaid loans. Over the last 25 years, the average student loan borrowing amount has tripled from $5,200 in the 90s to $16,100 in 2014 and is still rising.
Entrenched in debt, taking care of their offspring, servicing their loans and taking of their parents in debt has become a tall order for most parents. Most of them are on alternate repayment plans which means that they are paying off their own loans just as their own children are enrolling into college. This has created a sandwich generation that has is slowly aging and is set to become dependent too on their children.
So what's the way out?
The Parent PLUS loan has options that can be of help to parent borrowers. There are extended repayment options, graduated repayment as well as consolidation options. Under the income-contingent repayment option, for example, a parent can have any remaining balance after 25 years on the plan forgiven. For parents on public service jobs, they can have the forgiveness option in ten years.
Parents should also assist their children to find affordable institutions that will keep them off the debt. If there are no scholarships or other financial grants, children can start off from affordable community colleges and transit gently to four-year colleges without straining their parent's finances.
Finally, as steep as it has become to squirrel some savings aside, this virtue can be cultivated with good financial discipline. Start off when kids are young so that you will not have to suffer financial peril in the future.