How to pay off parent PLUS loans
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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 also put a strain on your finances. Parents who take out parent PLUS loans end up shouldering roughly $29,600 in student debt, according to the Century Foundation, with many of them still paying back their loans 20 years after their child has finished school. If you’ve taken on debt to help your child go to college but you need help paying it back, here are some strategies to get 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 Direct Loan types. Here are four options you can explore to make your parent PLUS loan payments more manageable.
Parent PLUS loan consolidation
If you’ve borrowed more than one parent PLUS loan for your child over the years, or if you’ve taken out loans for multiple children, loan consolidation might be a useful option. This free repayment strategy streamlines your repayment plan by combining multiple parent PLUS loans into a new Direct Consolidation Loan. After you consolidate Parent PLUS Loans, you’ll have one student loan bill and payment due each month, and your fixed interest rate will be averaged based on your loans’ original rates.
This option can also help if you’re struggling with your current monthly payments. A Direct Consolidation Loan has repayment terms of up to 30 years, so stretching out your repayment term will lower your monthly payments — though you will end up paying more in interest overall.
Student loan refinancing
Student loan refinancing is a common way to potentially reduce your interest rate, gain more favorable terms and lower your monthly payment. Only private lenders offer refinancing, so interest rates, repayment options, terms and benefits vary by company. This also means that you’ll no longer be eligible for federal student loan benefits, like flexible repayment plans and extended forbearance options if you’re experiencing financial hardship.
When applying for a parent PLUS loan refinance, the lender will conduct a credit check and ask you to provide information regarding your income and other financial obligations. This is to ensure that you have the ability 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. If you have exceptional credit, your interest rate could be significantly lower than what the federal government originally offered you.
Income-Contingent Repayment Plan
If you need lower parent PLUS loan payments and want to remain within the federal Direct Loan system, you can also consider pursuing an Income-Contingent Repayment (ICR) Plan.
Under an ICR Plan, your monthly payment is based on 20 percent of your discretionary income or an income-adjustment amount based on what you’d pay over 12 years under a fixed payment plan — whichever is less. You’ll need to recertify your income and family size annually, which can increase or decrease your monthly payments.
However, you can’t repay a parent PLUS loan as-is under the ICR Plan. To be eligible for the ICR Plan, you’ll need to first consolidate parent PLUS loans into a Direct Consolidation Loan. The newly consolidated loan can then be paid back under the ICR Plan.
A unique benefit of income-driven repayment plans, like ICR, is that if there’s any remaining debt left at the end of the repayment period, it will be forgiven.
Public Service Loan Forgiveness
Parents who work in the public sector might be eligible for Public Service Loan Forgiveness (PSLF). The PSLF program requires borrowers with eligible Direct Loans to work full time at a government or nonprofit organization during repayment.
Borrowers must make 120 payments on an income-driven repayment plan in order to complete Public Service Loan Forgiveness, so parents will need to consolidate their parent PLUS loans into a Direct Consolidation Loan and enroll in the Income-Contingent Repayment Plan to qualify. After 120 qualifying payments toward your loan, the remaining student loan balance can be forgiven.
Frequently asked questions about parent PLUS loans
How long do you have to pay off parent PLUS loans?
You have between 10 and 25 years to pay off your parent PLUS loans, depending on your repayment plan. However, you may extend your term up to 30 years by consolidating your loans, which will result in a lower monthly payment but more interest paid over time.
Can I transfer a parent PLUS loan to my child?
The only way to transfer a parent PLUS loan to your child is by refinancing the loan with a private lender. Currently, parents can’t transfer their parent PLUS loan to their child within the federal loan system.
Can you pay back a parent PLUS loan early?
Yes, you can pay back a parent PLUS loan early without penalties. For example, you can decide to make multiple parent PLUS loan payments per month, make one payment per month at an increased amount or make a lump-sum payoff to get out of student debt faster.
What happens if I don’t pay my parent PLUS loan?
If you don’t repay your parent PLUS loan, you’ll lose access to future federal student aid, deferment plans and more. Loans in default (which happens after 270 days of nonpayment) are reported to the credit bureaus, and you might also face legal consequences for nonpayment.
Are parent PLUS loans worth it?
Parent PLUS loans can be useful if your child has maxed out their student aid and has no other alternative to lower the cost of their education (e.g., attending 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 imagined for yourself. Before taking out a loan, understand the extra cost you’ll pay in interest and make a plan for repayment so you’re not taken by surprise.