4 Tips for Parent PLUS Loan Repayment

As a parent, you want to help your children to get the best education possible. For many, that means taking out substantial loans to fund the cost of their child’s or even grandchild’s college education.

In fact, consumers 60 and over make up the fastest-growing segment of student loan borrowers in America, according to the Consumer Financial Protection Bureau. An estimated 2.8 million people age 60 and over had student debt in 2015, compared with around 700,000 a decade prior.

So although student loans are often framed as a young person’s problem, parent borrowers are struggling under the weight of student loans, too. This is especially true of federal Parent PLUS Loans, which never come with subsidized interest and which tend to have higher rates than federal student loans taken out by undergraduate students.

If you are trying to figure out how to make Parent PLUS loan repayment more affordable without jeopardizing your long-term financial stability, this guide will help. Here are four tips to make Parent PLUS Loan repayment easier.

In this guide:

• Consolidation vs. Refinancing: Decide Which Makes More Sense
• See if You Qualify for Public Service Loan Forgiveness
• Choose the Right Parent PLUS Repayment Plan
• You Can Transfer the Loan to the Student

1. Consolidation vs. Refinancing: Decide Which Makes More Sense

If your current Federal Direct Loans are too burdensome to pay, either consolidation or refinancing may help. But before you choose one option, make sure you understand the differences between them.

Consolidation

Student loan consolidation can be done when refinancing (see the next section) or with the government. This section will refer to the latter—federal student loan consolidation.

If you consolidate your federal loans with the government, the loan you’d receive is called a Direct Consolidation Loan. You can apply for a Direct Consolidation Loan online, and it is possible to consolidate even a single Parent PLUS Loan.

With federal consolidation, your interest rate is determined based on a weighted average of your current rates. Since you can’t receive a lower interest rate, consolidation won’t save you money.

However, you can become eligible for more payment plan options, including income-driven options that cap payments at a percentage of your income.

You can also choose a longer repayment plan—consolidation loans can be repaid over as long as 30 years—but stretching out payments means the loan costs more over the long term.

>> Read More: Refinance vs Consolidation: Student Loan Differences

Refinancing

Refinancing Parent PLUS Loans is another option that parents should consider. In some cases, refinancing may be better than consolidation.

When you refinance your loans, you take out a new loan to pay off existing debts. If you can qualify for a refinance loan at a lower rate than you’re currently paying on your PLUS Loans, you could save money over time.

You also have the option to refinance to a loan with a longer repayment term. This could lower your monthly payment to give you more financial flexibility, but it could increase your total repayment costs because interest would have a longer time to accrue.

If your credit history is strong and you have less debt than when you originally took out your PLUS loan, refinancing may enable you to lock in a lower interest rate.

But if you refinance with a private student loan lender, you also give up many borrower protections exclusive to federal loans, such as the possibility of qualifying for student loan forgiveness programs.

Still not sure if refinancing makes sense? Our student loan refinance calculator will help you decide if refinancing could be a good option for you.

>> Read More: 7 Questions to Ask Before Refinancing Your Student Loans

2. See if You Qualify for Public Service Loan Forgiveness

Another good way to deal with Parent PLUS Loans is to seek financial aid. Public Service Loan Forgiveness (PSLF) is a loan program that allows the remaining balance of loans to be forgiven after 120 on-time payments are made. Basically, this means you need to make monthly payments for 10 years, after which the remaining balance will be forgiven.

You can qualify for PSLF only if you work in an eligible industry. Some examples include working for the government or working for a not-for-profit. Also, you must make loan payments under a qualifying income-contingent repayment plan.

For parents, consolidating loans to a Direct Consolidation Loan first is a prerequisite to becoming eligible for PSLF. So, you’d need to:

• Consolidate loans to a Direct Consolidation loan
• Work for an eligible employer, such as a not-for-profit or the government
• Choose an income-contingent payment plan
• Make 120 on-time payments

Once you’ve fulfilled all these requirements, the remaining balance on your loans could be forgiven.

3. Choose the Right Parent PLUS Repayment Plan

If you don’t refinance your loans and aren’t opting for an income-contingent plan to try to qualify for PSLF, you still need to select the best federal repayment plan for repaying your Parent PLUS Loans. You want a plan that is affordable both in the long-term and short-term, so be sure to research options available to you. These include the following.

To Pay off Debt Faster: Standard Repayment Plan

The standard repayment plan requires you to pay off your PLUS Loans after 10 years. You make fixed payments based on your total loan amount every month for the duration of the repayment term. Because you repay your loan steadily over a relatively short period of time, this plan can save you the most on interest but it could also result in higher monthly payments.

To Make Payments More Affordable Initially: Graduated Repayment Plan

This plan gradually increases payments every two years, so they start out very affordable and go up over time. Because you are making smaller payments at the beginning, you may pay more in interest under this plan, but you still pay off your loans on a schedule of 10 years.

To Make Monthly Payments Cheaper: Extended Repayment Plan

An extended plan allows you to pay your loans over 25 years with either fixed or graduated payments. Monthly payments will be lower, but you will face higher total interest costs due to the long repayment term.

To Make Payments More Affordable: Income-Contingent Repayment

Income-contingent repayment is another option, but it is available only if parents consolidate their loan into a Direct Consolidation Loan. Monthly payments are based on your income and any remaining loan balance is forgiven after 25 years of payments.

Monthly payments under this plan equal the lesser of 20% of discretionary income or the amount your payment would be on a fixed 12-year payment plan adjusted based on income.

4. You Can Transfer the Loan to the Student

A final option for dealing with Parent PLUS Loans is to transfer responsibility for the debt to the student. You can do this only if the student refinances with a lender that permits it. The student will need to meet both income and credit score requirements to qualify for the refinance loan.

>> Read More: Refinance Parent PLUS Loans

Bottom Line: Weigh your Parent PLUS Loan Repayment Options

As you can see, you have several options for dealing with Parent PLUS Loans. You could:

• Refinance or consolidate them yourself
• Try to get them refinanced into the student’s name
• Choose a payment plan that’s affordable and pay them off over time
• Try to get them forgiven using Public Service Loan Forgiveness.

The right course of action will depend on the specifics of your situation, so look into each option to figure out which makes sense for you.