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Can Parent PLUS Loans Get Income-Based Repayment and Loan Forgiveness?

Mark Kantrowitz

April 08, 2013

You’ve mentioned previously that while Parent PLUS loans are nominally eligible for public service loan forgiveness, they are not eligible for IBR or ICR, which leaves nothing left to forgive. Is there no relief for Parent PLUS loans altogether? Or, is there any way for Parent PLUS loans to qualify for loan forgiveness? — Anonymous

Federal Parent PLUS loans are not eligible for income-based repayment. They are, however, eligible for income-contingent repayment if they are included in a Federal Direct Consolidation Loan and the borrower entered repayment on or after July 1, 2006. This consolidation loan may then qualify for public service loan forgiveness (PSLF).

Federal student loans, such as Federal Stafford loan and Federal Grad PLUS loan, are eligible for income-based repayment (IBR) and pay-as-you-earn repayment (PAYER). They are also eligible for income-contingent repayment (ICR), an earlier version of income-based repayment. These repayment plans base the monthly loan payment on a percentage of discretionary income, as opposed to the amount you owe. They often yield a lower monthly payment than under other repayment plans, especially for borrowers whose total federal student loan debt exceeds their annual income.

Federal parent education loans, such as the Federal Parent PLUS loan, are not eligible for income-contingent repayment, income-based repayment or pay-as-you-earn repayment.

(Private student loans are also not eligible for income-contingent repayment, income-based repayment or pay-as-you-earn repayment. Private student loans, also known as alternative student loans, are non-federal loans that are not guaranteed or funded by the federal government.)

All Federal student and parent loans are eligible for standard 10-year repayment, graduated repayment and extended repayment. Graduated repayment starts off with monthly payments at or slightly above an interest-only payment and increases the monthly payment every two years. The final payment is no more than three times the initial payment. Extended repayment is a level repayment plan like standard repayment, but may use a repayment term of 12, 15, 20, 25 or 30 years, depending on the amount owed.

Federal student and parent loans are both eligible for public service loan forgiveness. Public service loan forgiveness forgives the remaining debt after ten years of full-time employment in a public service job for borrowers who repay their loans under the income-contingent repayment, income-based repayment, pay-as-you-earn repayment or standard repayment plans. However, because Federal Parent PLUS loans are not eligible for the income-contingent, income-based or pay-as-you-earn repayment plans, the only qualifying option is to repay the loans under standard repayment. (Even if Federal Parent PLUS loans were eligible for income-contingent or income-based repayment, the regulations at 34 CFR 685.219(c)(1)(iv)(A) and (B) specifically exclude allowing Federal Parent PLUS loans that were repaid under these repayment plans to qualify for public service loan forgiveness.) But the debt will be paid in full after ten years of payments under standard repayment, theoretically leaving nothing left to forgive.

ICR and PSLF for Parent PLUS Loans

But there is a workaround that may allow some borrowers to qualify for ICR and public service loan forgiveness.

Borrowers who entered repayment on or after July 1, 2006 may repay a Federal Direct Consolidation Loan under the income-contingent repayment plan even if the consolidation loan repaid Federal Parent PLUS loans, per the regulations at 34 CFR 685.208(a)(2)(iii) (or 34 CFR 685.208(a)(2)(iv)(D), as amended November 1, 2012). This enables recent Federal Parent PLUS loans to qualify for public service loan forgiveness if and only if they are included in a Federal Direct Consolidation Loan. Unconsolidated Federal Parent PLUS loans are not eligible. The Federal Direct Consolidation Loans are also eligible for 25-year forgiveness for borrowers who don’t qualify for public service loan forgiveness, after 25 years of payments under income-contingent repayment, standard repayment or the economic hardship deferment.

Federal Direct Consolidation Loans that refinance a Federal Parent PLUS loan, however, are not eligible for the income-based or pay-as-you-earn repayment plans.

The availability of ICR for Federal Parent PLUS loans may enable retired parents on fixed income to save money by stretching out the repayment term on the Federal Parent PLUS loans, similar to the method suggested for federal student loans in Ask Kantro: People Retiring with Student Loans May Save Money with Income-Based Repayment.

(The regulations are ambiguous whether “entered repayment” means just on the Federal education loans in question or on any of the borrower’s Federal education loan. If the former interpretation applies, a borrower with Federal Parent PLUS loans entering repayment prior to July 1, 2006 might qualify for income-contingent repayment by consolidating the loans into a Federal Direct Consolidation loan that enters repayment on or after July 1, 2006. However, the latter interpretation appears to be the correct interpretation, meaning that only the more recent Federal Parent PLUS loans may qualify for income-contingent repayment through consolidation and only if the borrower did not enter repayment on any federal education loans prior to July 1, 2006.)

Federal Direct Parent PLUS loan borrowers and borrowers of Federal Direct Consolidation Loans that repaid a Federal Parent PLUS loan may also petition the US Department of Education to allow repayment under an alternate repayment plan. The borrower must demonstrate that the terms and conditions of the other repayment plans are “not adequate to accommodate the borrower’s exceptional circumstances.” Alternate repayment plans are described in the regulations at 34 CFR 685.208(l) and in practice are similar to the income-contingent and income-based repayment plans. The alternate repayment plan is not eligible for public service loan forgiveness or the 20-year or 25-year forgiveness available under income-contingent, income-based or pay-as-you-earn repayment.

Generally, Federal Parent PLUS loans are not eligible for other federal loan forgiveness programs, such as teacher loan forgiveness. They may, however, be eligible for the student loan repayment programs sponsored by federal agencies under the authority of 5 USC 5379. They may also be eligible for non-federal loan repayment and loan forgiveness programs.

Federal Parent PLUS loans are eligible for other options for financial relief, such as deferments, forbearances and the total and permanent disability discharge.

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