Got Parent PLUS Loans? Here are Smart Options for Repayment
If you took out Parent PLUS loans to help your dependent pay for their education, there are many ways to approach repayment, depending on your situation and that of your dependent. We’ve got some tips for you to consider.
If Your Dependent is Still in School
You may request a deferment to postpone payments until your dependent leaves school or is enrolled less than half-time. You may also defer repayment for the six months following this date. Interest will accrue and any unpaid interest will be added to your balance, called capitalization, when the loan enters repayment. This option may make sense if you have other financial priorities. If you make payments that cover the accrued interest while in deferment, you’ll prevent or reduce the amount of interest that capitalizes.
If you don’t request a deferment, you’ll be expected to begin making payments after the loan is fully disbursed. You’ll automatically enter repayment on the Standard 10-year Repayment Plan. Repaying your student loan under this payment plan is the most cost effective option.
Who’s Going to Make the Loan Payments?
With Parent PLUS loans, you (the parent) are the borrower, not your dependent – and you’re legally responsible to repay the loan in full. As a Parent PLUS borrower, you may decide to share responsibility for repayment with your dependent, with splitting or alternating payments. However, your dependent isn’t legally obligated to the student loan, and the loan can’t be transferred to their name.
Repayment Options for Parent PLUS Loans
There are several options for repaying Parent PLUS loans.
Standard Repayment. We already talked about this as the most cost effective way to pay your student loan if you can afford the payments.
Graduated Repayment. Your monthly payments start off lower and increase every two years. No payment can triple any other payment. Your repayment term will be up to 10 years depending on your loan balance.
Extended Repayment. If you need to make lower monthly payments over a longer period of time than under plans such as the Standard Repayment Plan, then the Extended Repayment Plan may be right for you.
Refinancing Options for Parent PLUS Loans
If your dependent is going to make payments and they’re financially stable (and willing to forego federal borrower benefits), they can refinance the Parent PLUS loan into their name with certain lenders such as U-fi From Nelnet. Your dependent may qualify for a lower interest rate, making payments more affordable and reducing the total cost of the student loan. This option may also allow your dependent to continue building their credit rating. If they need a cosigner, you can be their cosigner (look for a program like U-fi From Nelnet’s that offers co-signer release after 24 on-time payments).
If you’re going to remain the responsible party for the student loan, you may decide to refinance Parent PLUS loans in your name, either with a Direct Consolidation loan or a private refinance loan. Generally, if your Parent PLUS loan balance is less than $50,000, refinancing is a great thing to consider if you can make it work with your income and other expenses. Note that if you refinance Parent PLUS loans with a private refinance loan, you’ll lose such as deferment and forbearance, so make sure you’re financially secure and willing to forego those. You can learn more about these at studentaid.gov.
If You Have Poor Credit or Large Amounts of Loan Debt
If you have poor credit, refinancing with a private refinance loan isn’t likely to gain you a lower interest rate – and you’ll lose federal borrower benefits you may need later. Likewise, if the amount of loan debt is high and unlikely to be something you’ll be able to afford to repay, you’ll want to consider repayment options available to you under the Parent PLUS Loan program, and make sure you have federal borrower benefits as an option.
Additional Repayment Options with Direct Consolidation of Your Parent PLUS Loan
Income-Contingent Repayment (ICR). If you’ve included a Parent PLUS loan (that has entered repayment on or after July 1, 2006) in a Federal Direct Consolidation Loan, you can obtain the ICR plan. For this plan, your monthly payment is set at the lesser of these two: what you would pay on a repayment plan with a fixed monthly payment over 12 years, adjusted based on your income; or 20% of your discretionary income (the amount by which your adjusted gross income exceeds the poverty guideline amount for your state of residence and family size) divided by 12. After 25 years of on-time payments under ICR, your remaining balance will be forgiven. Currently, this forgiveness is considered taxable income to the borrower.
Public Service Loan Forgiveness (PSLF). Borrowers who work full-time in a qualifying public service job while repaying their student loans for 10 years (120 payments) in an Income-Driven Repayment plan may be eligible to have the loan balance forgiven. Jobs that qualify may include working for city, county, state, or federal government or for a 501(c)(3) tax-exempt charitable organization. ICR is the only Income-Driven Repayment plan available to Parent PLUS borrowers, so you would first need to consolidate your Parent PLUS loan(s) into a Federal Direct Consolidation Loan to qualify for the ICR plan. With PSLF, loan forgiveness is tax-free (currently) and your student loans would be forgiven after only 10 years, rather than the 25 years required for ICR.
There are a lot of things to know about Parent PLUS loans, but you do have options. We’re here to help!
Improving your finances means analyzing your options and making smart choices. We’re here to provide ideas and resources – and you know U-fi offers smart student loan refinance options if you need them. Learn more and get started today.
Links in this post are being provided as a convenience and for informational purposes only. This does not constitute an endorsement by U-fi of the services or opinions provided.