I borrowed Parent PLUS Loans to help pay for my daughter's undergraduate degree. She is now attending graduate school full-time. Can I continue to defer payments on my Parent PLUS Loans?
Many financial aid professionals will incorrectly answer “no.” Their intuition tells them that the repayment obligation may be deferred only during the student’s initial in-school period. Their reasoning may be influenced by other restrictions on the Parent PLUS Loan, such as the loan being available only for a dependent student’s undergraduate education. But, a careful reading of the law and regulations clearly indicates that the repayment of a Parent PLUS Loan may be deferred whenever the student is enrolled on at least a half-time basis. In this case, intuition is wrong.
Originally, the Parent PLUS Loan entered repayment 60 days after full disbursement. (Most schools disburse the Parent PLUS Loan in two installments.) Congress added in-school deferment as an option as part of the Higher Education Opportunity Act of 2008 [P.L. 110-315].
Specifically, the statutory language at 20 USC 1078-2(d)(1)(A)(ii) was amended to read:
“Repayment of principal on loans made under this section shall commence not later than 60 days after the date such loan is disbursed by the lender, subject to deferral ... upon the request of the parent borrower, during any period during which the student on whose behalf the loan was borrowed by the parent borrower meets the conditions required for a deferral under section 1077 (a)(2)(C)(i)(I) or 1078 (b)(1)(M)(i)(I) of this title”
The deferments in sections 1077 and 1078 are for any period during which the student is “pursuing at least a half-time course of study as determined by an eligible institution.” Note that the statutory language is for “any period” and does not limit the deferment to the initial in-school period or to the duration of the education program for which the loan was borrowed. The statutory language also does not require that the student still be a dependent student or still be pursuing an undergraduate degree.
The statute also allows for a deferment while the parent borrower is enrolled on at least a half-time basis and during the 6-month grace period after the student (or parent, whichever is later) ceases to be enrolled on at least a half-time basis.
The regulations at 34 CFR 682.201(v)(2) for the Federal Family Education Loan Program (FFEL) and 34 CFR 685.204(c)(2) for the William D. Ford Federal Direct Loan Program (DL) use similar language, “during the period when the student on whose behalf the loan was obtained is enrolled at an eligible institution on at least a half-time basis.”
Before Congress added the option of an in-school deferment, parents who wanted to delay the start of repayment of a Parent PLUS Loan had to obtain a forbearance. Such forbearances are usually limited to no more than three years in total duration.
However, just because parents can defer repaying a Parent PLUS Loan during the student’s undergraduate and graduate education, doesn’t mean they should. Interest continues to accrue on a Parent PLUS Loan during deferment and forbearance periods. If the interest is not paid as it accrues, it will be added to the loan balance (capitalized). In the Direct Loans program, the interest is capitalized at the end of the deferment or forbearance period. In the FFEL program, the interest may be capitalized no more frequently than quarterly, but many FFEL lenders use the same capitalization frequency as the Direct Loans program. During an extended period of non-payment, the capitalized interest can significantly increase the size of the loan. For example, after 8 years in deferment, the capitalized interest may increase the loan balance by as much as half or even two-thirds of the amount originally borrowed, depending on the interest rate.
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