Are Parent PLUS Loans Eligible for Forgiveness?

Yes, in some cases, but the process is not always straightforward

Fact checked by Maddy SimpsonFact checked by Maddy Simpson

PLUS (Parent Loan for Undergraduate Students) loans are a type of federal student loan. Parents can apply for one to cover as much as the full cost of college for their children. If you have a Parent PLUS loan, here are your options for obtaining loan forgiveness.

Key Takeaways

• Parent PLUS loans can be eligible for Income-Contingent Repayment (ICR) and Public Service Loan Forgiveness (PSLF).
• However, they must be consolidated into a federal Direct Consolidation loan first.
• Your eligibility for these programs can depend on your income and the type of employer you work for.
• If forgiveness is not available, you can explore alternative options such as refinancing or consolidating with a private lender or choosing a more flexible federal repayment plan.

Eligibility for Forgiveness

Parent PLUS loans must be consolidated into a Direct Consolidation loan to be considered for forgiveness. After that, several criteria will determine your eligibility for having some of the money you owe forgiven.

• Your income. If you qualify for the Income-Contingent Repayment (ICR) program, your monthly payments will be capped based on your income. Any balance that remains on the loan after 25 years will be forgiven.
• Your employment. If you work in a public service job, you may be eligible for loan forgiveness through the Public Service Loan Forgiveness Program (PSLF) after the equivalent of 10 years of payments.

Fast Fact

As of the second quarter of 2024, there was $109.8 billion in outstanding Parent PLUS loan debt.

How Forgiveness Programs Work

The ICR and PSLF programs work differently. Here are the basic details:

Income-Contingent Repayment (ICR) Plan

Parent PLUS loans are eligible for an ICR plan after they have been consolidated into Direct Consolidation Loans.

ICR plans can lower your monthly payments and eventually lead to loan forgiveness. Payments are calculated as either what you would pay over a 12-year loan period or as no more than 20% of your discretionary income for the year.

Under the ICR plan, your loan term will extend to 25 years. If you still owe money after that term ends, the remaining balance of the loan is forgiven.

Public Service Loan Forgiveness (PSLF) Program

People who work for the government or certain nonprofit organizations may be able to seek Parent PLUS loan forgiveness through the PSFL Program.

Eligible employers include:

• Federal, state, local, and tribal U.S. government organizations
• 501(c)(3) nonprofits
• Other nonprofits that focus on qualifying public services, such as public health and public education

If your employer qualifies, your first step will be to consolidate your Direct PLUS loan into a Direct Consolidation loan. Then, you will need to apply for an ICR plan and begin making payments.

Once you have made 120 monthly payments through a qualifying repayment plan, the remaining balance of your loan will be forgiven.

Limitations and Exceptions

Student loan forgiveness for Parent PLUS loans does have limitations and exceptions. Although there are a number of income-driven repayment (IDR) plans available for other federal student loan borrowers, Parent PLUS loans only qualify for the ICR program. (While that is the general rule, a possible loophole involving so-called SAVE plans recently came to light, as explained below.)

Your employment is another factor to consider. You must work for an eligible employer to pursue loan forgiveness through the PSLF program.

As mentioned, you must also consolidate your loan into a Direct Consolidation loan. If you don’t, you must use the 10-year Standard Repayment plan or another plan in which you pay your balance in full.

Alternative Options to Forgiveness

If loan forgiveness is not possible, Parent PLUS loan borrowers can explore other options that may make repayment more achievable:

• Refinancing. You may be able to refinance your Parent PLUS loan with a private lender to access lower interest rates or a longer repayment term. However, private loans will vary from lender to lender and may lack some of the advantages of government loans.
• Consolidation. Refinancing may also let you consolidate multiple Parent PLUS loans into a single loan with a lower interest rate.
• Other federal repayment plans. Parent PLUS borrowers can choose from three government repayment plans: standard, graduated, and extended. The last two offer greater flexibility in terms of your monthly payment amounts.

Can You Transfer a Parent PLUS Loan to a Student?

Parents who take out a Direct PLUS loan cannot transfer that loan to their child. If they wish to transfer the debt, their student must apply for a loan from a private lender, use that money to repay the original PLUS loan, and assume responsibility for the new loan going forward.

Are Parent PLUS Loans Eligible for IDR?

Parent PLUS loan borrowers have to consolidate their loans with a federal Direct Consolidation loan to become eligible for an Income-Driven Repayment (IDR) plan. Unless they then take additional steps (see next section for an example), the only IDR program they are eligible for is the Income Contingent Repayment (ICR) plan.

Are Parent PLUS Loans Eligible for SAVE?

Saving on a Valuable Education (SAVE) plans are a type of IDR plan that can lower monthly payments. Parent PLUS loan borrowers may be eligible for this option, according to a number of sources, but it requires multiple steps.

First, you need to have two or more federal loans. If you have two PLUS loans, you will need to consolidate each of them into a separate Direct Consolidation loan. Then, you have to consolidate those loans into a single Direct Consolidation loan by July 1, 2025.

Once you have that single Direct Consolidation loan, you are eligible to apply for a SAVE plan.

However, see the “Important” note immediately below.

Important

As of this writing, the Federal Student Aid website carries this note: “On July 18, 2024, a Federal Court issued a stay preventing the Department of Education from operating the Saving on a Valuable Education (SAVE) Plan. We are assessing the ruling and will be in touch directly with borrowers about how this will affect them.”

Can You Defer a Parent PLUS Loan?

Parents can apply to defer a PLUS loan, which results in a temporary pause in payment. Borrowers can qualify for deferment if their child is enrolled in college at least half-time or for another six months after the child is no longer enrolled at least half-time.

If you defer payment, you will likely be responsible for the interest that accrues during that period.

The Bottom Line

When you apply for a Parent PLUS loan, you are agreeing to shoulder some or all of the cost of your child’s education. So it’s important to weigh the benefits and risks of these loans. How could that debt impact your own financial goals and retirement plans?

If you are struggling to repay a Parent PLUS loan, loan forgiveness may be possible. However, you will need to meet the eligibility requirements and take several steps to get there. Before you make any moves, it’s a good idea to speak with your loan servicer about the process for consolidating your Parent PLUS loans and your likely eligibility for an ICR or a PSLF plan.

Read the original article on Investopedia.