Table of Contents

Can’t Pay My Parent PLUS Loan? Understanding Your Options and Finding Relief

The sinking feeling of being unable to repay a Parent PLUS Loan is a situation nobody wants to face. The short answer is yes, you absolutely have options if you’re struggling to make payments, and understanding these options is the first step toward regaining control of your financial situation. From deferment and forbearance to consolidation and even potential loan forgiveness programs, the landscape of repayment assistance can seem complex, but relief is available. This article is designed to illuminate the pathways open to you and help you navigate toward a solution that works.

Understanding the Parent PLUS Loan Landscape

Before diving into specific solutions, it’s crucial to understand what makes Parent PLUS Loans unique. Unlike other federal student loans, Parent PLUS Loans are taken out by parents to help finance their child’s education. The responsibility for repayment rests solely on the parent, not the student. These loans typically have higher interest rates than other federal student loan types, which can exacerbate repayment challenges.

The good news is that despite these differences, Parent PLUS Loans are eligible for many of the same federal repayment programs as other federal student loans, although sometimes with specific nuances. Let’s explore those options.

Exploring Your Repayment Options

If you find yourself unable to make your Parent PLUS Loan payments, consider the following strategies:

Deferment: This allows you to temporarily postpone your loan payments. The interest on unsubsidized loans (including PLUS loans) will continue to accrue during deferment, meaning your loan balance will grow. Common deferment reasons include economic hardship or unemployment.
Forbearance: Similar to deferment, forbearance allows you to temporarily stop making payments or reduce your payment amount. Interest also accrues during forbearance. It’s generally used when you don’t qualify for deferment but are experiencing temporary financial difficulties.
Loan Consolidation: Combining your Parent PLUS Loans into a Direct Consolidation Loan can simplify repayment by creating a single loan with a fixed interest rate (weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of one percent). Consolidation also unlocks access to the Income-Contingent Repayment (ICR) plan, the only income-driven repayment (IDR) option directly available for Parent PLUS loans.
Income-Contingent Repayment (ICR): As mentioned above, consolidation is a necessary step to accessing ICR with a Parent PLUS Loan. ICR sets your monthly payments based on your income and family size. After 25 years of qualifying payments, the remaining balance is forgiven, although the forgiven amount may be subject to income tax.
Double Consolidation Loophole (Potentially Phasing Out): This complex strategy, while still potentially available, involves consolidating the Parent PLUS Loan twice to make it eligible for other IDR plans like Income-Based Repayment (IBR) or Pay As You Earn (PAYE). However, the Department of Education is actively working to close this loophole, so its availability is uncertain and requires careful research and potentially professional guidance. Check the latest updates on the Federal Student Aid website.
Discharge Options: In specific circumstances, your Parent PLUS Loan may be discharged (canceled). Common reasons include:
- Death of the Student or Parent: The loan is discharged if either the student for whom the loan was taken out or the parent borrower dies.
- Total and Permanent Disability: If the parent borrower becomes totally and permanently disabled, the loan may be discharged.
- School Closure: If the school your child attended closed while they were enrolled or shortly thereafter, you might be eligible for a closed school discharge.
- False Certification/Unauthorized Payment: In rare cases, if the loan was falsely certified or disbursed without authorization, it may be discharged.

Seeking Professional Help

Navigating the complexities of student loan repayment can be overwhelming. Consider seeking guidance from a qualified financial advisor or student loan expert. They can help you assess your specific situation, explore all available options, and develop a customized repayment strategy. Be wary of companies that promise quick fixes or charge excessive fees. Reputable organizations, like non-profit credit counseling agencies, offer free or low-cost counseling services.

FAQs: Addressing Your Parent PLUS Loan Concerns

Here are some frequently asked questions to provide further clarity:

1. Can I transfer my Parent PLUS Loan to my child?

No, Parent PLUS Loans are the legal responsibility of the parent borrower and cannot be transferred to the child. The loan agreement is solely between the parent and the U.S. Department of Education (or the lending bank, if it was a FFEL loan).

2. What happens if I default on my Parent PLUS Loan?

Defaulting on a Parent PLUS Loan can have severe consequences, including wage garnishment, tax refund offset, damage to your credit score, and ineligibility for future federal student aid. The government can also sue you to recover the debt.

3. Can I refinance my Parent PLUS Loan?

Yes, you can refinance your Parent PLUS Loan with a private lender. Refinancing involves taking out a new loan to pay off your existing Parent PLUS Loan. This could potentially secure a lower interest rate or more favorable repayment terms. However, refinancing a federal loan into a private loan means losing access to federal repayment options like deferment, forbearance, and income-driven repayment plans. Consider this carefully before refinancing.

4. Is the “Double Consolidation Loophole” still available?

As previously mentioned, the Double Consolidation Loophole is potentially being phased out. The Department of Education is actively taking steps to eliminate this strategy. Before pursuing this option, thoroughly research its current status and potential limitations on the Federal Student Aid website or consult with a student loan expert.

5. How do I apply for Income-Contingent Repayment (ICR) for my Parent PLUS Loan?

First, consolidate your Parent PLUS Loan into a Direct Consolidation Loan. Then, you can apply for ICR through the Federal Student Aid website. You’ll need to provide information about your income and family size.

6. What is the difference between deferment and forbearance?

Both deferment and forbearance allow you to temporarily postpone or reduce your loan payments. The key difference lies in the eligibility requirements. Deferment often requires meeting specific criteria, such as economic hardship or unemployment. Forbearance is typically granted for temporary financial difficulties that don’t necessarily meet the deferment requirements. Also, the type of interest that accrues can sometimes differ based on the specific deferment program.

7. Will my Parent PLUS Loan affect my child’s credit score?

No, the Parent PLUS Loan is solely the parent’s responsibility and will not directly impact the child’s credit score. However, if you default on the loan, it could negatively affect your relationship with your child.

8. Can I consolidate my Parent PLUS Loan with my other student loans?

Yes, you can consolidate your Parent PLUS Loan with other federal student loans you may have. However, consolidating different types of loans can affect your eligibility for certain repayment programs. Consult with a student loan advisor before consolidating loans of different types.

9. What is the interest rate on Parent PLUS Loans?

The interest rate on Parent PLUS Loans is set by Congress and can vary from year to year. It is a fixed interest rate for the life of the loan. You can find the current and historical interest rates on the Federal Student Aid website.

10. What documentation do I need to apply for deferment or forbearance?

The required documentation varies depending on the specific reason for deferment or forbearance. Generally, you’ll need to provide proof of your financial situation, such as pay stubs, tax returns, or unemployment documentation. You may also need to provide documentation related to the reason for your request, such as medical bills or documentation of military service.

11. If my child receives student loan forgiveness, will it affect my Parent PLUS Loan?

No, your child’s student loan forgiveness will not directly affect your Parent PLUS Loan. The Parent PLUS Loan is a separate loan obligation with its own terms and conditions.

12. Where can I find more information about Parent PLUS Loans and repayment options?

The best resource for information is the Federal Student Aid website (studentaid.gov). You can also contact your loan servicer directly for personalized assistance.

Key Takeaway: Don’t despair! While managing Parent PLUS Loans can be challenging, remember that options are available. Proactive communication with your loan servicer and thorough exploration of repayment programs are vital steps toward finding a manageable solution. You are not alone!