How to repay Parent PLUS loans


Parent PLUS loans – federal student loans that parents can take out on behalf of their child – are a convenient way to pay for a child’s education, but they can take years to pay off. According to National Center for Education Statistics. If you’ve taken on debt to help your child get to college, but need help paying it off, here are some strategies to get you started.

4 Ways to Pay Off Parent PLUS Loans

Parent PLUS loans fall under the federal direct loan program but have limited repayment options compared to other types of direct loans. Here are four options to consider when repaying PLUS parent loans.

Parent PLUS loan consolidation

If you have borrowed more than one parent PLUS a loan for your child over the years, or if you have taken out loans for more than one child, loan consolidation can be a useful option. This free repayment strategy streamlines your repayment plan by combining multiple parent PLUS loans into one new direct consolidation loan. After consolidating Parent PLUS loans, you will have a student loan invoice and payment due each month, and your fixed interest rate will be averaged over the original rates of your loans.

This option can also help you if you are having difficulty with your current monthly payments. A direct consolidation loan has repayment terms of up to 30 years, so extending your repayment term will lower your monthly payments – although you will end up paying more interest overall.

Student loan refinancing

Refinancing a student loan is a common way to potentially lower your interest rate, get better terms, and lower your monthly payments. Only private lenders offer refinancing, so interest rates, repayment options, terms, and benefits vary by company. It also means that you will no longer be eligible for federal student loan benefits, such as flexible repayment plans and extended forbearance options if you experience financial difficulties.

When applying to refinance a parent PLUS loan, the lender will conduct a credit check and ask you to provide information regarding your income and other financial obligations. This is to make sure that you have the capacity to repay the refinance loan. Your interest rate will be largely determined by your credit score, so the better your credit, the cheaper your loan will be. If you have exceptional credit, your interest rate could be significantly lower than the federal government originally offered you.

Income-based repayment plan

If you need lower PLUS parent loan payments and want to stay in the federal direct lending system, you may also want to consider pursuing an Income-Based Repayment Plan (ICR).

Under an ICR plan, your monthly payment is based on 20% of your discretionary income or an income adjustment amount based on what you would pay over 12 years under a fixed payment plan, whichever is less. You will need to recertify your income and family size each year, which may increase or decrease your monthly payments.

However, you cannot repay a parent PLUS loan as is under the ICR plan. To qualify for the ICR plan, you will first need to consolidate Parent PLUS Loans into a Direct Consolidation Loan. The newly consolidated loan can then be repaid under the ICR plan.

A unique advantage of income-driven repayment plans, like ICR, is that if there is any debt left at the end of the repayment period, it will be forgiven.

Public service loan remission

Parents who work in the public sector may be eligible for the Public Service Loan Discount (PSLF). The PSLF program requires borrowers with eligible direct loans to work full-time in a government or non-profit organization during repayment.

Borrowers must make 120 payments on an income-based repayment plan in order to complete the remission of the civil service loan. After 120 qualifying payments for your loan, the remaining student loan balance may be canceled.

Frequently Asked Questions About Parent PLUS Loans

Can I transfer a parent PLUS loan to my child?

The only way to transfer a parent PLUS loan to your child is to refinance the loan with a private lender. Currently, parents cannot transfer their parent PLUS loan to their child under the federal loan system.

Can you prepay a parent PLUS loan?

Yes, you can prepay a parent PLUS loan with no penalties. For example, you can decide to make multiple PLUS Parent Loan payments per month, make one payment per month at a larger amount, or pay a lump sum to get rid of student debt faster.

What happens if I don’t pay off my parent PLUS loan?

If you don’t repay your parent PLUS loan, you’ll lose access to future federal student aid, deferral plans, and more. Loans in default (which happens after 270 days of non-payment) are reported to the credit bureaus, and you could also face legal implications for non-payment.

Are Parent PLUS Loans Worth It?

Parent PLUS loans can be useful if your child has maximized their student aid and has no other alternative to lower the cost of their education (for example, attend a more affordable school). However, Parent PLUS loans can derail your own life goals, like saving for retirement, paying off your mortgage, or living the lifestyle you’ve always envisioned for yourself. Before taking out a loan, understand the additional cost you will need to pay in interest and plan for the repayment so you don’t get caught off guard.

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