This is one of the most common questions I get almost everyday - I can't afford my Parent PLUS Loans, what do I do?
I'm a firm believer that parents should NOT be taking out loans to pay for their children's' education. There are a lot of reasons why it's a bad idea, and I cover most of them in my Forbes column.
The fact is, though, if you're reading this article, it's too late. You've already borrowed and now you're struggling to pay it back. And the most common way that parents borrow money to pay for college is through Parent PLUS Loans.
They sound like a good idea - parents can get Federal loans with all the great benefits that students get. The trouble is, that's wrong. In fact, Parent PLUS Loans don't offer any type of income-based repayment plan (directly) nor do they qualify any type of student loan forgiveness programs (well, once again, this is nuanced as well and we discuss below).
In fact, the options are extremely limited with Parent PLUS Loans. You have a few workarounds, but typically student loan refinancing or working together as a family are your best bets. If you're considering refinancing, we recommend Credible. There are some lenders that will allow you to even refinance your Parent PLUS loan into your child's name. Check out Credible here, and if you do refinance, get up to a $750 bonus!
If you're not quite sure where to start or what to do, consider using a tool to help you with your student loans. We recommend LoanBuddy to help you analyze your loans and put together a financial plan for your student loan debt. Check out LoanBuddy here >>
The Myths Of Parent PLUS Loans, IBR, PAYE, And PSLF
First, there are a lot of myths surrounding what you can or can't do with Parent PLUS Loans, so let's bust those right now.
If you have Parent PLUS Loans, you cannot:
- Qualify for Income-Based Repayment (IBR)
- Qualify for Pay-As-You-Earn Repayment (PAYE)
If you are on the standard 10-year repayment plan for your Parent PLUS Loan, you are eligible for Public Service Loan Forgiveness (PSLF). However, since PSLF requires 120 payments (or 10 years of payments), you'll have nothing left to forgive at the end.
Options To Lower Your Parent PLUS Loan Payments
However, there are still options available to lower your student loan payments. Each one requires careful consideration of the pros and cons to see what's right for you.
Change Your Repayment Plan
First, you can still change your repayment plan to:
- Graduated: Graduated repayment starts off with monthly payments at or slightly above an interest-only payment and increases the monthly payment every two years. The final payment is no more than three times the initial payment.
- Extended: Extended repayment extends your repayment term to 12, 15, 20, 25 or 30 years, depending on the amount owed. This will lower your monthly payments to be level across the new loan term.
With both of these plans, you will see lower payments. However, with the graduated plan, these payments will rise over time. With the extended plan, the payments will remain the same. The drawback of both of these options is that you will pay more interest over the life of the loan. However, if affordability of the monthly payment is your key obstacle, then interest shouldn't matter too much.
Refinance Your Loan
Second, you could refinance your Parent PLUS Loan into a private student loan. Private loans typically offer lower payments and lower interest rates, however, many of these low rates are variable and could rise over time. But, for many, the much lower payment makes up for any potential rise in the future.
We partner with Credible to help people refinance their student loans. Credible is a comparison tool that allows you to compare rates in less than 2 minutes, without a credit check! As a bonus, College Investor readers can get a $200 bonus when they refinance with Credible.
Get started now and see if you can save money refinancing your loan with Credible.
Parent PLUS Student Loan Refinancing
For borrowers with Parent PLUS Loans that have good credit, one of the best options (if you can afford it and don't qualify for student loan forgiveness) is to refinance your student loan. Refinancing allows you to potentially get a lower interest rate or lower payment than you currently have.
Some lenders have a unique program where you can refinance your Parent PLUS Loan out of the parent's name, and into the student's name. It might still require the parent to cosign, but these programs also have cosigner release after a certain number of on-time payments. This is a great program to take the burden off the parents and put it on the student (who got the benefits to begin with).
The lenders that offer this include:
CommonBond allows you to refinance your student loans from the parent's name to the student's name. They also have very competitive rates and terms for borrowers.
To start the process, the child/student should go to CommonBond and select "Refinance My Student Loans". They should have the loan information and documents that pertain to your Parent PLUS loan handy when doing the process.
Earnest is another lender that allows you to refinance your Parent PLUS Loans into your student's name.
To start the process, the child/student should go to Earnest and select "Get Your Rate". When entered the information, you should select Parent PLUS Loan and enter the loan information that pertains to your Parent PLUS Loan.
LendKey is the third major lender that allows you to refinance your student loans from the parent's name to the student's name. They also have very competitive rates and terms for borrowers.
To start the process, the child/student should go to LendKey and select "Apply Now". They should have the loan information and documents that pertain to your Parent PLUS loan handy when doing the process.
Traditional Deferment, Forbearance, and Cancellation Still Apply
For Parent PLUS Loans, borrowers still have the option to apply for deferment, forbearance, and student loan cancellation.
Deferment and forbearance are temporary ways to stop making payments on your student loan. You can read more about deferment and forbearance here.
Parent PLUS Loans can also qualify for student loan cancellation, which is different from student loan forgiveness (we explain the difference here). If you are totally and permanently disabled, or the loan was taken out under fraudulent circumstances, you could have the loan cancelled.
The ICR Workaround Via Student Loan Consolidation
Third, there is a potential workaround that will allow some borrowers to convert their Parent PLUS Loan into a Federal Direct Consolidation Loan. This simple change will allow borrowers to qualify for income-contingent repayment (ICR), and also for Public Service Loan Forgiveness (PSLF).
ICR is an income-based repayment plan that is not as generous as IBR or PAYE. Borrowers paying on the ICR plan pay 20% of their discretionary income for up to 25 years. At the end of the 25 year period, the remaining debt is discharged. And, unlike IBR and PAYE, borrowers don't need to meet income requirements to qualify under the plan.
Borrowers who have Federal Direct Consolidation Loans are also able to qualify for PSLF (Public Service Loan Forgiveness). With PSLF, you can have your debt forgiven in 10 years (120 payments). If you combine ICR with PSLF while paying your direct consolidation loan, you can save a good deal on your student loan debt.
What most Parent PLUS Borrowers don't realize is that you don't need to have multiple loans to consolidate. You can have just the single Parent PLUS Loan, and you can apply for student loan consolidation. Anyone can consolidate their Parent PLUS Loans for free at StudentLoans.gov.
By consolidating your Parent PLUS Loan, you essentially convert it into a Federal Direct Consolidation Loan, and now you're eligible for ICR and PSLF. Win-win!
Consider Getting Professional Help
In all my time working with student loan debt, dealing with Parent PLUS Loans is the absolute worst. They don't offer as many options as other loan types, and when parents are struggling with their debt, it can really hurt an entire family.
The best place to get help with your loans is by calling your lender and working with them. You can also go online to StudentLoans.gov and do many things with your loan, including changing your repayment plan.
You can also use a tool like LoanBuddy that will analyze your loans and help you figure out the best plan.
If you're not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.
Talking With Your Family
Finally, it never hurts to talk about your student loan debt situation with your family. Remember, you took out these parent student loans to help your child pay for their college education. After graduation, the hope is your child will earn more and be financially well-off.
While no parent wants to burden their children, being buried by student loan debt can be detrimental. You might not be a burden to your children now, but if you can't afford retirement because your Social Security is being garnished to pay back the debt, you could end up needing even more support in the future.
Having open and honest dialogues with your children about student loan debt, and even asking for support with the payments, may make a lot of sense for some families. You helped your child pay for their education, maybe they can help pay you back for it after graduation.
Regardless, your children should know where you stand financially, especially if you can't afford to make your Parent PLUS Loan payments.
Parent PLUS Loans are the worst student loans, and we highly recommend avoiding them if at all possible. If you're already reading this, it's probably too late. As such, really focus on working together as a family to pay down the loans, and see if refinancing them makes sense.
Are you struggling with your Parent PLUS Loans?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.