Can Parent PLUS Loans Be Forgiven?
Parent PLUS loans have fewer forgiveness options compared to other federal student loans. For federal loans, both “forgiveness” and “discharge” mean loan cancellation, but they occur under different circumstances. Forgiveness is typically granted for achieving something specific, like working in a public service job. Discharge, on the other hand, happens due to challenging events, such as a permanent disability or the death of the borrower or the student.
When it comes to student loan forgiveness, Direct PLUS loans made to parents are only eligible for Public Service Loan Forgiveness if the borrower consolidates the loan into a Direct Consolidation Loan and then repays the loan under an income-contingent repayment plan. In addition, a Direct Consolidation Loan which includes a parent PLUS loan may also be eligible through repayment plan forgiveness under the income-contingent repayment plan. When it comes to other types of forgiveness options, like Teacher Loan Forgiveness, Parent PLUS loans are not eligible.
All federal student loans are eligible for the same type for discharge options. As discussed before, there could be options if you, the borrower, become total and permanently disabled. And your loan could be discharged if you or the student who benefitted from the loan dies. Other discharge options could include False Certification and Identify Theft.
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How Can I Get My Parent PLUS Loan Forgiven?
If you are interested in Public Service Loan Forgiveness or forgiveness from an income-driven repayment plan, you will need to consolidate your parent Direct PLUS loan and agree to repay the loan under an income-contingent repayment plan.
The reason for this. There are no income-driven repayment plans, (such as, income-contingent, income-based, pay as you earn, revised pay as you earn etc.) which allow for the repayment of a Direct PLUS loan made to a parent. However, only the income-contingent repayment plan will allow for the repayment of a Direct Consolidation Loan which was used to payoff a Direct PLUS loan made to a parent. When it comes to Public Service Loan Forgiveness, there is a strict requirement of making 120 qualifying payments in a qualifying repayment plan. Qualifying repayment plans require a borrower to repay their loans under an income-driven repayment plan*.
*Payments made under a 10-year Standard Repayment plan will count as a qualifying payment, however, if a borrower chooses to solely repay a loan under a 10-year plan, nothing will be left to forgive after 120 payments.
Parent PLUS Student Loan Forgiveness
After consolidating with a Direct Consolidation Loan, Parent PLUS Loans can be forgiven through two programs: Income-Contingent Repayment (ICR) or Public Service Loan Forgiveness (PSLF).
Income Contingent Parent PLUS Loan Repayment Plan
The only income-driven repayment plan that Parent PLUS Loan borrowers can take advantage of is Income-Contingent Repayment (ICR). This repayment plan factors in your family size and income to help determine your monthly payment. In terms of your monthly payment under ICR, it will be the lesser of 20% of your discretionary income or the fixed monthly payment of your loan with a 12-year term.
As for forgiveness, you want to be aware that the ICR repayment plan affords you the opportunity to have the remaining balance on your loans forgiven after 25 years of qualifying payments. Unlike PSLF, which we will discuss next, the amount may be taxable. In the recently passed American Rescue Plan Act of 2021 (P.L. 117-2), also known as the $1.9 trillion coronavirus relief package which was signed into law by President Biden, student loans forgiven will not be taxable through 2025, with the option to extend or make this provision permanent before its expiration date.
Do note that the 25-year term for the ICR Plan likely means that you will pay more in interest, and it is possible that you could save money by refinancing with a private lender. However, the Income-Contingent Repayment plan could lower your monthly payment, providing some relief for additional expenses.
Parent PLUS Loan Public Service Forgiveness
Public Service Loan Forgiveness can be an effective, and faster repayment option for parents with jobs that qualify for the program. Essentially, following ten years of qualifying payments (120 payments in total), made in an eligible repayment plan, while working in an eligible public service job full-time (in certain circumstances, part-time employment may count as the equivalent as full-time employment), a parent could have the rest of their student loan debt forgiven.
Remember that the only income-driven repayment plan for Parent PLUS loan borrowers is the Income-Contingent Repayment Plan after the loans are consolidated into Direct Consolidation Loan. With the income-contingent repayment plan, parents would be in repayment for 25 years, so parents eligible for Public Service Loan Forgiveness could save themselves 15-years’ worth of payments if they qualify.
How to Consolidate a Parent PLUS Loan
In order to consolidate a Parent PLUS Loan, you will have to complete a federal Direct Consolidation Loan application.
After consolidating your Parent PLUS Loan into a Direct Consolidation Loan, you have different repayment options. You can choose between standard repayment terms of up to 30 years and income-driven repayment plans with repayment terms capped at 25 years.
If your goal is loan forgiveness or Public Service Loan Forgiveness, note that the Income-Contingent Plan is the only income-driven repayment plan under which a consolidated Parent PLUS Loans may be forgiven.
Can a Parent PLUS Loan Be Discharged in Bankruptcy?
Bankruptcy can be a reason for discharge; however, you would have to prove an undue hardship. We recommend speaking to a bankruptcy attorney if you are pursuing a bankruptcy filing.
How Can Parent PLUS Loans Be Discharged?
There are various circumstances and situations in which a Parent PLUS Loan may be discharged:
- School closure leading to the inability of your child to complete their program
- Your child's school's failure to refund loan money following your child withdrawing from school, withstanding the law
- Your death or the death of the child you borrowed for
- Your child's school falsely certified your eligibility to borrow
- Identity theft led to a false certification of the loan
- Discharge via bankruptcy
- If you, the borrower (not the student whose behalf you obtained the loan) become totally and permanent disabled.
Parent PLUS Loan Forgiveness Retirement
There is no forgiveness available to Parent PLUS Loan borrowers looking to retire. Remember that Parent PLUS Loan forgiveness is only possible through the Income-Contingent Repayment Plan or PSLF after first consolidating your Parent PLUS Loan into a federal Direct Consolidation Loan.
Although forgiveness might not be a possibility for parents looking to retire, below are some ways for parents with a Parent PLUS Loan to prepare for retirement.
Tuition Reimbursement Expansion for Student Loan Repayment
You may be familiar with employer tuition reimbursement, well, you may be interested hear about how the benefits were expanded in the American Rescue Plan Act of 2021. Employers may pay up to $5,250 annually toward an employee’s student loans, which would be excluded from the employee’s income. However, this is at the discretion of the employer to offer these expanded benefits. You may want to have a chat with HR to see if this is an option for you. These benefits are set to expire in 2025.
If your employer will help you pay your student loan debt down, that can help you tackle your student loan debt, putting yourself in a better position for retirement.
Refinance Parent PLUS Loans
It is possible that refinancing your Parent PLUS Loans could save you some money. The interest rates for Parent PLUS Loans are normally higher than those offered by private student loan lenders, so you may be able to save on your monthly payment and interest paid over the life of the loan. While this decision won’t free you from paying back the loan, it could provide you with extra money that could be invested or put away for retirement.
A private student loan lender will review your eligibility based on their underwriting criteria. In general, they are looking for a minimum credit score, at least two years of work history, and a good debt-to-income ratio.
Transfer Parent PLUS Loans to Your Child
Another option for Parent PLUS Loan borrowers is transferring your loans to your child. To accomplish this, your child will have to qualify for a refinance loan on their own (or with a creditworthy cosigner), and you will have to refinance with a private lender. This would place the burden of repaying the loan on your child; however, you would be in a better position to establish or increase your retirement savings.
Parent PLUS Loan Forgiveness for Teachers
PLUS Loans, namely Parent PLUS or Grad PLUS Loans, are exempt from the federal Teacher Loan Forgiveness Program. The loans that are eligible for teacher loan forgiveness are Direct Subsidized and Unsubsidized Loans.
Parent PLUS Loan Forgiveness Disability
Parent PLUS Loan cancellation is possible for borrowers who experience a total and permanent disability (TPD). In order to file for TPD discharge, you have to fill out an application and provide documentation that verifies your condition. You can gather documentation from a physician, the Social Security Administration (SSA), or the U.S. Department of Veterans Affairs (VA).
Are Parent PLUS Loans Forgiven If the Parent Dies?
Yes, if the parent dies, Parent PLUS Loans will be discharged. This is also the case in the death of the student on whose behalf the parent borrowed. Documentation such as an original death certificate will need to be provided to the loan servicer to prove the death of the parent or child.
Refinance and Repay With a Private Lender
For Parent PLUS Loan borrowers, there are several scenarios when refinancing and repaying with a private lender can be a smart decision. Here are a few of those situations:
- You’re approaching retirement and need to save for that
- You want to transfer your Parent PLUS Loan to your child
- You’re paying more in interest than what you could be paying with a private lender
- You’re not eligible for the loan forgiveness programs out there
- You want a lower monthly payment
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