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Here are four options to consider when paying off parent PLUS loans. Since income-contingent repayment is the only income-driven repayment option for Parent PLUS loans, parent borrowers must consolidate their Parent PLUS loans into a Federal Direct Consolidation Loan first to qualify for public service loan forgiveness.
Repaying the loans under standard repayment would yield no forgiveness, as the loans would be paid off in full after 10 years under standard repayment. Public service loan forgiveness reduces the forgiveness period from 25 years to 10 years. Public service loan forgiveness is tax-free. Another option is to refinance your Parent PLUS loans into a private student loan or private parent loan, or a non-education loan. You might qualify for a lower interest rate if you have excellent credit.
However, you will lose the federal repayment options for Parent PLUS Loans and other benefits, since the loan will no longer be a federal loan after you refinance it. Keep in mind refinancing federal student loans means a loss in many benefits — any federal forgiveness programs, generous deferment options, and more. Your child can refinance the loan in his or her name through a private lender.
This will then transfer responsibility for repaying the loan to them. To qualify for a private refinance, however, they must have a strong credit score, enough income to make the appropriate payments and have a history of making on time loan payments. Parent PLUS loans are eligible for deferments and forbearances for up to three years, the same as other federal education loans. Parent PLUS loans are also eligible for a deferment if the student on whose behalf the parent borrowed returns to college on at least a half-time basis.
Interest continues to accrue during a deferment or forbearance. This increases the amount of debt, making it more difficult to repay. For longer-term financial difficulty, the parent should choose a repayment plan that involves low monthly payments instead of a complete suspension of the repayment obligation. Deferment will give you time to get your finances in order. Note that since the interest on the PLUS loan is not subsidized, it continues to accrue while deferred or in forbearance and is capitalized when the loan enters repayment.
Consolidating PLUS loans provides access to alternate repayment terms, such as extended repayment, graduated repayment, and income contingent repayment. Consolidation also reduces the interest rate by 0. It is best to consolidate PLUS loans separately from Stafford and Perkins Loans to maximize the benefit of this interest rate reduction.
However, one should also consider the impact of consolidation on available education loan discounts. Eligibility for the PLUS loan depends on a modest credit check that determines whether the parent as an adverse credit history. An adverse credit history is defined as being 90 or more days late on any debt or having any Title IV debt including a debt due to grant overpayment within the past five years subjected to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off.
Only one parent needs to apply for and be denied a PLUS loan. It is generally a good idea for parents who think they might be denied a PLUS loan or have other exceptional circumstances that prevent them from using the PLUS loan program to talk to the school before applying for a PLUS loan.
If they happen to obtain a PLUS loan approval it makes it much more difficult for the school to grant the student the additional unsubsidized Stafford loan eligibility. If the dependent student receives the additional unsubsidized Stafford loan eligibility and the parent subsequently receives a PLUS loan, the student will not receive any subsequent disbursements on the additional unsubsidized Stafford loan but may retain any amounts already disbursed.
Subsequent Stafford loan disbursements revert to the lower unsubsidized Stafford loan limits without considering any excess amounts received under the higher unsubsidized Stafford loan limits. The annual cap on the PLUS loan must consider the total amount of Stafford loan disbursements under the cost-of-attendance minus aid received cap. To qualify, however, the student must be enrolled at least half-time and be eligible for federal student aid.
Both the parent borrower and the student must be US citizens, nationals or eligible noncitizens.
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