If you took out student loans to help send your child to college, you’re not alone — over 3.4 million Americans held Parent PLUS Loans in 2018, according to a report by The Brookings Institution. And many are struggling to handle repayments, with the default rate rising in recent years. Fortunately, you have a few options to lower the monthly burden on your finances — from income-driven repayments to refinancing.
The Income-Contingent Repayment (ICR) Plan is the only federal income-driven repayment plan available to Parent PLUS Loan borrowers. However, you’ll need to consolidate your loans with a Direct Consolidation Loan before you can sign up.
While on this plan, you’ll pay 20% of your monthly discretionary income — with repayments capped at what you’d pay on a 12-year standard repayment plan. Signing up for this plan will also extend your loan term to 25 years, which will lower the monthly burden on your finances even more.
The Department of Education (DoE) forgives your remaining balance at the end of your term. Just keep in mind that the IRS considers the amount you have forgiven taxable income, so you might be in for an unpleasant surprise come April.
Take a deeper dive into the Income-Contingent Repayment Plan
The ICR Plan isn’t the only way to lower your monthly repayments. Parent PLUS Loans also qualify for two other repayment options:
- Extended Repayment Plan. This plan extends your loan term to 25 years, which will help break up your monthly repayments into more manageable chunks. Just keep in mind you’ll pay more in interest in the long run. To qualify, you’ll need at least $30,000 in either Direct or FFEL Loans.
- Graduated Repayment Plan. This plan is best if you expect your salary to increase in the future and want to stick with a 10-year loan term. You’ll start out making smaller repayments, which will slowly increase every two years — ideally, along with your income.
Deferment and forbearance aren’t the same thing, but they can both be used to pause repayments while you’re struggling. You can request deferment or forbearance in a few situations, such as if you’re going back to school, experiencing economic hardship or are called to active military duty. In most cases, interest continues to accrue and gets added to your loan balance once repayments begin again, making your loan more expensive in the long run.
The ins and outs of deferment and forbearance
If it’s been a few years since your child graduated and they have a decent job and good credit, it may be worth asking them to take over repayments. You can do this by refinancing the loans in your child’s name with a private lender. However, keep in mind that doing this means you’ll no longer be able to take advantage of the benefits that come with federal loans, like flexible repayment options, deferment and forbearance.
But even if your child isn’t in a position to take on full monthly repayments, they may still be willing to help out if you’re struggling. Over 75% of students expect to pay back some or all of the student loans their parents took out on their behalf, according to a 2019 survey by Sallie Mae. Talk to your child and create a plan for handling your Parent PLUS Loans. You may be legally responsible for repaying them, but having your child contribute something to your repayments each month can help ease the financial burden.
If you haven’t yet fallen behind on repayments and have decent credit, you might be able to refinance with a private lender. While you’ll lose out on federal benefits, you could potentially extend your loan term or even lower your rate. Both can help reduce the amount you pay each month, making your loan more affordable. Just make sure the lender accepts Parent PLUS Loans before you apply — not all are willing to refinance these types of federal loans.
What if I already defaulted on my Parent PLUS Loans?
If you’re loans are already in default, consider student loan rehabilitation. This is a process offered by the DoE that helps ease your student loans out of default and erase the mark from your credit report. You’ll also be able to take advantage of income-based repayments — which are calculated as 15% of your annual discretionary income divided by 12.
Just keep in mind this won’t totally fix the problem — the late payments you made will remain on your credit report, and any wage garnishment will still be in effect. But it’s still the best option if you’ve really fallen behind and can no longer afford your repayments.
Take a deeper dive into how student loan rehabilitation works
If you’re struggling to afford your Parent PLUS Loan repayments, you have a few ways to get yourself back on track — from refinancing to signing up for more flexible repayment plans. And if you’ve already defaulted, you might want to take advantage of the federal government’s student loan rehabilitation program. You can learn more about how it all works with our guide to refinancing Parent PLUS Loans.