Are Parent PLUS Loans Deferred? Navigating Deferment and Forbearance Options

Yes, Parent PLUS loans can be deferred, under specific circumstances. However, the eligibility criteria and available deferment options differ somewhat compared to those available for other federal student loans. While deferment offers a temporary reprieve from making payments, understanding the nuances of eligibility, application processes, and the impact on loan balances is crucial for parents navigating the complexities of student loan repayment.

Understanding Deferment and Forbearance for Parent PLUS Loans

Before diving into the specifics of Parent PLUS loan deferment, it’s essential to understand the difference between deferment and forbearance. Both options provide temporary relief from loan payments, but they operate differently.

• Deferment: Allows you to temporarily postpone your loan payments. Interest may not accrue during deferment periods for certain loan types (like subsidized loans), but interest always accrues on Parent PLUS loans during deferment.
• Forbearance: Also allows you to temporarily postpone or reduce your loan payments. Interest always accrues during forbearance periods, including on subsidized loans.

Knowing this distinction is critical because the accrued interest gets added to your principal balance, meaning you’ll pay interest on a larger amount once repayment resumes.

Deferment Options Available for Parent PLUS Loans

While the exact deferment options available can change over time based on federal regulations, here are some common deferment categories that Parent PLUS loan borrowers may be eligible for:

• In-School Deferment: This is perhaps the most common deferment sought by Parent PLUS loan borrowers. If the student on whose behalf the loan was taken is enrolled at least half-time at an eligible college or university, the parent borrower may be eligible for an in-school deferment.
• Economic Hardship Deferment: If the parent borrower is experiencing economic hardship, they may be eligible for this type of deferment. This often requires demonstrating financial difficulties, such as receiving public assistance or having income below a certain threshold. The specific criteria vary.
• Unemployment Deferment: If the parent borrower becomes unemployed or is unable to find full-time employment, they may be eligible for an unemployment deferment. Documentation demonstrating unemployment is typically required.
• Military Service Deferment: If the parent borrower is serving on active duty in the military, they may be eligible for a military service deferment.

Forbearance Options for Parent PLUS Loans

When deferment options are not available or suitable, forbearance can provide a temporary solution. Common forbearance options include:

• General Forbearance: Offered at the discretion of the loan servicer, typically granted for short-term financial hardships.
• Mandatory Forbearance: Requires the loan servicer to grant forbearance if the borrower meets specific criteria, such as participating in a medical or dental internship or residency program.

Remember that interest always accrues during forbearance, regardless of the reason for granting it.

Applying for Deferment or Forbearance

The application process for deferment or forbearance is typically straightforward:

1. Contact Your Loan Servicer: The first step is to contact your loan servicer. They can provide you with the correct application forms and information about eligibility requirements.
2. Complete the Application: Fill out the application form accurately and completely.
3. Provide Documentation: You’ll likely need to provide supporting documentation to verify your eligibility. This might include proof of enrollment, unemployment documentation, or financial hardship documentation.
4. Submit the Application: Submit the completed application and supporting documents to your loan servicer.
5. Await Approval: Your loan servicer will review your application and notify you of their decision.

Impact of Deferment and Forbearance on Loan Balances

It’s crucial to understand the financial implications of deferment and forbearance. While they offer temporary payment relief, interest continues to accrue on Parent PLUS loans during these periods. This accrued interest is then capitalized – added to your principal balance – when repayment resumes. This capitalization increases the total amount you’ll repay over the life of the loan.

Consider this example: If you have a $50,000 Parent PLUS loan at a 7% interest rate and defer payments for two years, the accrued interest could add several thousand dollars to your principal balance.

Frequently Asked Questions (FAQs) About Parent PLUS Loan Deferment

Here are 12 frequently asked questions related to the deferment and forbearance of Parent PLUS Loans:

1. Can I defer my Parent PLUS loan if my child is no longer in school?

Generally, no. The in-school deferment typically applies only while the student is enrolled at least half-time at an eligible institution. Once the student graduates, withdraws, or drops below half-time enrollment, this deferment option ceases to be available. However, other deferment options like economic hardship or unemployment might be available if you meet the eligibility requirements.

2. How long can I defer my Parent PLUS loan?

The length of deferment depends on the specific type of deferment. For example, an in-school deferment lasts as long as the student remains enrolled at least half-time. Economic hardship and unemployment deferments typically have a maximum duration of three years. Always check with your loan servicer for specific details.

3. Does deferment affect my credit score?

If your loan is in deferment and reported correctly, it should not negatively impact your credit score. Deferment is a recognized temporary suspension of payments. However, it’s essential to ensure your loan servicer accurately reports your loan status to the credit bureaus.

4. What happens to the interest that accrues during deferment?

As mentioned earlier, interest continues to accrue on Parent PLUS loans during deferment. This accrued interest is typically capitalized, meaning it’s added to your principal balance when the deferment period ends.

5. Can I make payments during deferment?

Yes, you can absolutely make payments during deferment. Any payments you make will go towards reducing the principal balance, which can save you money in the long run by minimizing the amount of interest you pay over the life of the loan.

6. What if I’m denied for deferment?

If your deferment application is denied, you have several options:

• Appeal the Decision: If you believe the denial was in error, you can appeal the decision.
• Explore Forbearance: If deferment is not an option, consider applying for forbearance.
• Explore Income-Driven Repayment Plans: Although Parent PLUS loans are generally not eligible for income-driven repayment plans, there is a loophole that can allow for that. By consolidating the Parent PLUS loan into a direct consolidation loan, you can then qualify for the Income Contingent Repayment (ICR) plan.

7. Are Parent PLUS loans eligible for Income-Driven Repayment (IDR) plans?

As mentioned previously, Parent PLUS loans are not directly eligible for standard Income-Driven Repayment (IDR) plans like IBR, PAYE, or REPAYE. However, as mentioned previously, there is a consolidation loophole. By consolidating into a Direct Consolidation Loan, you can become eligible for the Income Contingent Repayment (ICR) plan.

8. How often do I need to renew my deferment?

The renewal frequency depends on the type of deferment. For in-school deferment, you may need to provide updated enrollment verification each semester or year. For economic hardship or unemployment deferment, you may need to reapply annually and provide updated documentation. Always check with your loan servicer.

9. Where can I find the deferment application form?

You can usually find the deferment application form on your loan servicer’s website. You can also request it from your servicer directly via phone or email.

10. What’s the difference between a deferment and a loan discharge?

Deferment is a temporary postponement of payments, while a loan discharge completely cancels your obligation to repay the loan. Discharges are typically granted only in specific circumstances, such as borrower death, permanent disability, or school closure.

11. Will my loan servicer automatically put my Parent PLUS loan into deferment if my child goes back to school?

No, your loan servicer will not automatically put your loan into deferment. You must proactively apply for deferment and provide proof of enrollment to your loan servicer.

12. Is it better to defer or consolidate my Parent PLUS loan?

The best option depends on your individual circumstances. Deferment offers temporary payment relief, but interest continues to accrue. Consolidation, while potentially opening the door to the ICR plan, can extend your repayment term and increase the total interest paid over the life of the loan. Carefully weigh the pros and cons of each option based on your financial situation and long-term goals, also considering the potential for loan forgiveness with the ICR plan.

Navigating Parent PLUS loan repayment can be challenging. Understanding the available deferment and forbearance options, along with their implications, is crucial for making informed decisions about managing your debt. Always consult with your loan servicer and consider seeking advice from a qualified financial advisor to develop a repayment strategy that works best for you.