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Can’t Pay Parent PLUS Loans? 4 Ways to Get Back on Track

Consider transferring the loan to your child, switching repayment plans or postponing payments. As a last resort, recover from default.
Oct. 26, 2018
Loans, Student Loans
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You did what you thought was best and took on debt to help fund your child’s college education. But now you can’t pay the parent PLUS loans.

It’s a frustrating place to be.

However, you have options. Here are four possible solutions for parents who can’t pay their PLUS loans —  in order of most preferable to least.

1. Transfer the loan to your child

If you can’t pay but your kid can, consider having them refinance the parent PLUS loan in their name through a private lender. They’ll need good credit to qualify and enough income to comfortably afford their expenses, student loan payments and other debts.

64% of students say they expect to share responsibility for parent loan payments.

2018 Sallie Mae survey

Even if your child doesn’t qualify for student loan refinancing, talk to them about taking on some payments. You may be surprised by the answer — in a 2018 survey by private student lender Sallie Mae, 64% of students said they expect to share responsibility for parent loan payments.

Unless your child refinances the PLUS loan in their own name, you’ll still be legally liable. But their contribution can make repaying the loan more manageable.

2. Switch repayment plans

If you struggle to make your current monthly payment but could swing a lower one, consider an income-contingent, graduated or extended repayment plan. These plans are available to PLUS loan borrowers regardless of credit.

Keep in mind that you’ll pay more in interest with a longer repayment schedule.

  • Income-contingent repayment caps monthly payments at 20% of your discretionary income or the amount you’d pay on a 12-year fixed repayment plan — whichever is less. It also extends your repayment timeline from 10 to 25 years and forgives the balance remaining after that period. To be eligible, you must first consolidate through a federal direct consolidation loan. Choose this plan if you’re pursuing Public Service Loan Forgiveness.
  • Extended repayment extends your repayment schedule from 10 to up to 25 years, stretching out your payments over a longer period of time. All PLUS loans are eligible for this plan.
  • Graduated repayment starts you off with lower payments and increases the payment amount every two years. This is a good option if you expect your income to grow steadily. You’ll remain on a 10-year repayment timeline. All PLUS loans are eligible for this plan.

3. Postpone payments

If you’re returning to school yourself, serving in the military or experiencing a financial hardship, you may temporarily postpone payments through deferment or forbearance.

Interest will accrue while you’re in deferment or forbearance and get added to your loan balance when you enter repayment, increasing your total balance. It’s not a long-term solution, but it’ll give you some wiggle room while you figure out a more permanent plan.

4. Recover from default

Parent PLUS loans enter default after 270 days of missed payments. At this point, your priority should be getting the loans in good standing.

Until you do, the government can garnish your wages and withhold your tax refunds and Social Security checks, among other consequences. Borrowers with defaulted loans also aren’t eligible to choose a repayment plan, or enter deferment or forbearance.

There are three ways to get out of student loan default for federal loans: repayment, rehabilitation and consolidation. Rehabilitation or consolidation are probably your best options, and there are pros and cons to both.

Still overwhelmed? Talk to a pro

Your parent PLUS loans are one small part of your financial life. You likely have a mortgage, and maybe a car payment or some credit card debt. Hopefully, you have a healthy retirement fund and an emergency savings account.

It’s important to factor in these other goals as you’re paying off your parent PLUS loans. A credit counselor — especially one who specializes in student debt — can help. Look for one that’s accredited through the National Foundation for Credit Counselors or the Financial Counseling Association of America. Prices vary, but some are free or charge nominal costs.

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