The Hidden Burden of Parent PLUS Loans: Exploring Pathways to Debt Relief

Explore parent PLUS loan borrowers’ challenges and discover alternative options for obtaining debt relief. Learn about income-driven repayment plans, loan forgiveness programs, temporary pandemic-tied relief, and more.

Questions Answered in this Article

Question 1: What is the status of parent PLUS loans in the Department of Education’s repayment plan overhaul? Answer: The recent repayment plan overhaul by the Department of Education does not provide relief for parent PLUS loan borrowers.

Question 2: How have parent PLUS loans evolved? Answer: Parent PLUS loans, initially intended for well-off families, have become a last resort for lower-income families to bridge funding gaps after their students reach the borrowing limit. The loans now contribute to the intergenerational debt.

Question 3: What alternatives are for parent PLUS loan borrowers seeking debt relief? Answer: Parent PLUS loan borrowers can explore options such as permanent federal relief programs like Income-Contingent Repayment and Public Service Loan Forgiveness. They can also consider deferment or forbearance, temporary pandemic-tied relief, and bankruptcy as potential solutions.

Question 4: How does Income-Contingent Repayment work for parent PLUS loan borrowers? Answer: Income-Contingent Repayment is the only income-driven repayment plan for parent PLUS loan borrowers. It caps payments at 20% of a borrower’s monthly discretionary income for 25 years, with any remaining debt forgiven after that period. Borrowers must consolidate their parent PLUS loans before enrolling in this plan.

Question 5: Are there any temporary relief options for parent PLUS loan borrowers? Answer: Parent PLUS loan borrowers may qualify for interim relief measures, such as student debt cancellation under President Joe Biden’s proposal or the one-time automatic income-driven repayment account adjustment. These options offer potential debt reduction or forgiveness, but their availability and specifics depend on external factors like court decisions and government initiatives.

Relief Options if You’re in Debt From Your Kid’s Education

In January, the Department of Education made headlines by announcing a significant overhaul of the repayment plan for federal student loans. While this plan brought hope to many borrowers, one group remains excluded: the 3.7 million parents burdened by parent PLUS loans. However, the landscape of the program has evolved considerably since its inception in 1980, with these loans now serving as a last resort for lower-income families. This article explores the challenges parent PLUS loan borrowers face and presents alternative options for obtaining debt relief.

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Redefining Parent PLUS Loans

Initially designed for well-off families, parent PLUS loans have become a crucial lifeline for lower-income households. Professor Robert Kelchen from the University of Tennessee, Knoxville, explains that these loans bridge the funding gaps after a student reaches their borrowing limit of $7,500 per year from the government. Unfortunately, debt accumulation is accelerated by higher interest rates and origination fees associated with parent PLUS loans. On average, borrowers find themselves shouldering a staggering $29,000 debt burden, creating a cycle of intergenerational debt.

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Exploring Debt Relief Options

Although the recent repayment plan overhaul does not benefit parent PLUS loan borrowers, alternative avenues exist for seeking relief. This section delves into several strategies:

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1. Permanent Federal Relief Programs: a. Income-Contingent Repayment: This income-driven plan extends the loan term, lowers monthly payments, and leads to forgiveness after 25 years. To qualify, parent PLUS loan borrowers must consolidate their loans before enrolling in this program. b. Public Service Loan Forgiveness (PSLF): Parents employed in nonprofit and government sectors may qualify for PSLF, which forgives the remaining debt after a decade of repayment. However, borrowers must consolidate their parent PLUS loan into a direct loan and enroll in the Income-Contingent Repayment plan before applying for PSLF.
2. Deferment or Forbearance: Borrowers facing financial hardships can request payment pauses, known as deferment or forbearance. However, it is crucial to consider other relief options first, as interest will accumulate during these pauses and be added to the principal loan balance.
3. Temporary Pandemic–Tied Relief: a. Student Debt Cancellation: Under President Joe Biden’s proposal, some parent PLUS loan borrowers could be eligible for debt cancellation. The Supreme Court is expected to decide on the recommendation by late June. b. Income-Driven Repayment Account Adjustment or Waiver: The Education Department’s one-time automatic adjustment provides credit for months spent in repayment, forbearance, or deferment. This brings some parent PLUS loan borrowers closer to forgiveness and applies to Income-Contingent Repayment and PSLF-eligible loans.
4. Bankruptcy: Government guidance aims to make it easier for borrowers to discharge student loans in bankruptcy. However, borrowers with long-term parent PLUS loans should wait until the income-driven repayment waiver is applied before pursuing bankruptcy. Individuals who have been in repayment for over two decades may consider bankruptcy an option if they cannot afford Income-Contingent Repayment.

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Conclusion

The burden of parent PLUS loans disproportionately affects lower-income families, perpetuating intergenerational debt. While these borrowers may not benefit from the recent repayment plan overhaul, alternative relief options exist. By exploring programs such as Income-Contingent Repayment, Public Service Loan Forgiveness, temporary pandemic-tied relief, and bankruptcy, parent PLUS loan borrowers can find pathways to alleviate their debt burdens. Borrowers must proactively seek assistance and engage with their loan servicers to explore these opportunities for relief.

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Definition of Terms

1. Parent PLUS loans: Federal student loans available to parents of undergraduate students. These loans allow parents to borrow up to the total cost of attendance minus other financial aid received by the student.
2. Repayment plan overhaul: Refers to changes made to the existing plans for repaying student loans. These changes can include adjustments to monthly payment amounts, loan terms, and forgiveness options.
3. Intergenerational debt: Debt passed down from generation to generation, such as parents carrying their student loans and children’s debt.
4. Income-Contingent Repayment (ICR): An income-driven repayment plan for federal student loans. It sets monthly payments at 20% of the borrower’s discretionary income and forgives any remaining debt after 25 years of repayment.
5. Public Service Loan Forgiveness (PSLF): A federal program that forgives the remaining student loan debt for borrowers who work in eligible public services jobs, such as government or nonprofit organizations, after making 120 qualifying payments.
6. Deferment: A temporary postponement of loan payments. During deferment, interest may continue to accrue on the loan, but the borrower is not required to make payments.
7. Forbearance: A temporary period of reduced or suspended loan payments granted by the lender. Unlike deferment, interest continues to accrue on the loan during forbearance.
8. Student debt cancellation: The forgiveness or partial forgiveness of student loan debt, typically initiated through government programs or proposals.
9. Bankruptcy: A legal process that allows individuals or businesses to seek relief from their debts when they cannot repay them. Student loans may sometimes be discharged in bankruptcy, although it can be challenging.
10. Loan consolidation: Combining multiple loans into a single loan with one monthly payment. Consolidating parent PLUS loans can help borrowers qualify for certain repayment plans or forgiveness programs.
11. Pell Grant: A need-based federal grant program for undergraduate students with exceptional financial needs. It does not need to be repaid.
12. Principal loan balance: The original amount borrowed, excluding interest and other charges. Payments made towards the loan reduce the principal balance.