About 3.6 million families have outstanding parent PLUS loans, according to Federal Student Aid data. The average debt burden among borrowers is about $30,600, with many still paying back their loans 20 years after their child has finished school. They also have limited repayment options and fewer protections compared to other Direct Loan types. However, borrowers still have plenty of options for tackling these payments.
If you've borrowed more than one parent PLUS loan for your child over the years or taken out loans for multiple children, loan consolidation might be elpful. This free repayment strategy streamlines your repayment plan by combining multiple parent PLUS loans into a new Direct Consolidation Loan. After you consolidate Parent PLUS Loans, you'll have one student loan bill and payment due each month. Your fixed interest rate will be averaged based on your loans' original rates.
This option can also help if you're struggling with your monthly payments. A Direct Consolidation Loan has repayment terms of up to 30 years, so stretching out your repayment term will lower your monthly payments -- though you will pay more interest overall.
Student loan refinancing is a common way to potentially reduce your interest rate, gain more favorable terms and lower your monthly payment. Only private lenders offer refinancing, so interest rates, repayment options, terms and benefits vary by company. This also means you'll no longer be eligible for federal student loan benefits, like flexible repayment plans and extended forbearance options if you're experiencing financial hardship.
When applying for a parent PLUS loan refinance, the lender will conduct a credit check and ask you to provide information regarding your income and other financial obligations. This is to ensure that you can repay the refinance loan. Your credit score will largely determine your interest rate, so the better your credit, the cheaper your loan. If you have exceptional credit, your interest rate could be significantly lower than the federal government originally offered you.
If you need lower parent PLUS loan payments and want to remain within the federal Direct Loan system, consider an Income-Contingent Repayment (ICR) Plan.
Under an ICR Plan, your monthly payment is based on 20 percent of your discretionary income or an income-adjustment amount based on what you'd pay over 12 years under a fixed payment plan -- whichever is less. You'll need to recertify your income and family size annually, which can increase or decrease your monthly payments.
However, you can't repay a parent PLUS loan under the ICR Plan. To be eligible for the ICR Plan, you must first consolidate parent PLUS loans into a Direct Consolidation Loan. The newly consolidated loan can then be paid back under the ICR Plan.
A unique benefit is that any remaining debt at the end of the repayment period will be forgiven.
Parents who work in the public sector might be eligible for Public Service Loan Forgiveness (PSLF). The PSLF program requires borrowers with eligible Direct Loans to work full time at a government or nonprofit organization during repayment.
Borrowers must make 120 payments on an income-driven repayment plan to complete Public Service Loan Forgiveness. Parents will need to consolidate their parent PLUS loans into a Direct Consolidation Loan and enroll in the Income-Contingent Repayment Plan to qualify. After 120 qualifying payments toward your loan, the remaining student loan balance can be forgiven.
Parent PLUS loans have a standard repayment plan spread over 10 years. These plans have a fixed interest rate that does not change over the loan's lifespan, even if market interest rates rise.
These plans do not offer any form of debt forgiveness, so there is little flexibility for those who need a plan tied to their income. However, the standard repayment plan typically has favorable rates and a shorter repayment period for families that can afford it.
Student loan default -- failing to repay your loan as promised -- has serious consequences, such as harm to your credit, losing access to additional federal aid and potential wage garnishment. So, it's unwise to never pay your student loans. If you're having trouble repaying a Parent PLUS loan, contact your loan servicer to enroll in forbearance or deferment. Those options temporarily halt your loan payments.
Parent PLUS loans are a way for families to access more funds to cover the growing costs of higher education. However, with higher rates than other federal student loans, they can be tough on families' budgets. Ideally, you should decide which repayment plan fits your finances before taking out a parent PLUS loan. But if you're struggling now, you can explore options like refinancing.