Student loans aren’t limited to students. Increasingly, parents take on debt to help their children cover college costs.
Over roughly two decades, parents more than tripled the average annual amount they borrowed in parent PLUS loans, the government borrowing program with the highest federal student loan interest rates.
But there are multiple parent PLUS loan repayment options: refinancing, income-contingent repayment, consolidation, standard repayment and Public Service Loan Forgiveness. Choose a strategy that fits your family’s overall financial situation and goals.
Parent PLUS loan repayment options
How to pay off parent PLUS loans quickly
Refinancing parent PLUS loans to a lower interest rate will save you money in interest and can help you become debt-free faster. Parents can refinance PLUS loans in their name, or the child can take over the PLUS loan by refinancing it in his or her own name.
To qualify, you generally need good credit and enough income to comfortably afford all of your expenses and debt payments — including housing, student loans and credit cards. Refinancing isn’t a good option for borrowers who are pursuing student loan forgiveness or can’t afford payments on the standard, 10-year federal repayment plan.
Making payments on the standard, 10-year federal repayment plan is the parent PLUS loan repayment option that will save you the most money and get you out of debt the fastest if you don’t qualify for refinancing or loan forgiveness. To become debt-free even faster, make extra payments toward the loan principal.
How to lower parent PLUS loan payments
Consolidating parent PLUS loans won’t save you money in the long run, but it can lower your monthly payments. It’s also necessary if you want to make payments on an income-contingent repayment plan or pursue loan forgiveness.
Consolidation won’t save you money, but it can lower your monthly payment.
When you consolidate parent PLUS loans, they become a federal direct consolidation loan. You can consolidate even if you only have a single parent PLUS loan.
You’ll have 10 to 30 years to repay the consolidated loan, depending on the loan balance. On a longer repayment schedule, you’ll have lower monthly payments but also pay more in interest over time.
Income-contingent repayment reduces your monthly federal student loan payment to 20% of your income or the amount you’d pay on a fixed 12-year repayment schedule, whichever is less. It also offers forgiveness after 25 years if you’re still making payments at that time.
To be eligible for income-contingent repayment, you must first consolidate your parent PLUS loans.
Switch to income-contingent repayment only if you can’t afford payments on the standard 10-year federal repayment plan. On income-contingent repayment, you’ll pay more in interest and you’ll be required to pay income tax on any amount forgiven.
How to transfer a parent PLUS loan to the student
Refinancing with a private lender is the only way to transfer parent PLUS loans to the student. Not all refinance lenders allow this, but several do. To qualify, the student must have good credit — a score in the mid-600s or higher — and a low debt-to-income ratio, meaning they have enough income to cover their expenses and debt payments.
How to get parent PLUS loan forgiveness
Public Service Loan Forgiveness
The fastest way to get parent PLUS loan forgiveness is through Public Service Loan Forgiveness.
Public Service Loan Forgiveness is a federal program that forgives nonprofit and government employees’ loans after they make 120 monthly payments, or 10 years’ worth. Unlike with income-contingent repayment, the forgiven amount won’t be taxed.
Make sure you fully understand how to get Public Service Loan Forgiveness before pursuing it, because the program has very specific rules and requirements. For instance, the parent must work for a qualifying employer in order to get forgiveness on parent PLUS loans; the student’s employment doesn’t matter.
To be eligible for PSLF, you must first consolidate your parent PLUS loans into a direct consolidation loan.