This week I received a reader email asking about Public Service Loan Forgiveness for his father. This is a situation that is probably familiar to many borrowers:

• The parent works in a public service job (such as a government or 501(c)(3) position).
• They took out a Parent PLUS loan to help pay for school.
• Parents are making loan payments but are thinking about retirement.

In this case, the reader’s dad was coming upon his retirement age, but thinking about sticking around a little longer to qualify for Public Service Loan Forgiveness (PSLF).

The Problem with PSLF for Parent PLUS Loans

In order for a student loan to qualify for Public Service Student Loan Forgiveness, the borrower must make 120 payments (10 years worth) and be enrolled in one of the following repayment plans:

• the standard 10-year plan
• Income-Based Repayment (IBR)
• Pay As You Earn (PAYE)
• Saving on A Valuable Education (SAVE)
• Income-Contingent Repayment (ICR).

If you are on the standard 10-year plan, forgiveness doesn’t do you much good because your loan is paid off after 10 years.

The problem for Parent PLUS loan borrowers is that these loans are not eligible for IBR, REPAYE, SAVE, PAYE, or ICR. This means that even if you are in a public service job, payments on a Parent PLUS loan will not be helping you towards student loan forgiveness.

However, there is one exception.

The Exception

Borrowers can consolidate their Parent PLUS loans into a Federal Direct Loan in order to gain eligibility.

Even if you have just one Parent PLUS loan, you can consolidate the loan into a Federal Direct Consolidation loan through the Department of Education. This may seem silly because consolidating the one loan doesn’t change its interest rate. In all practicality, it really is nothing more than a name change.

That name change makes a big difference, however. Even though the consolidated loan contains a Parent PLUS loan, it is eligible for the Income Contingent Repayment Plan.

However, consolidation will not help Parent PLUS borrowers gain eligibility for the more preferable plans, such as SAVE. The only exception to this rule, the double consolidation loophole, requires completing the process by July 1, 2025.

Important Warning on Consolidation: Even though Federal Direct Consolidation is an essential step for Parent PLUS Loans to become eligible for PSLF, borrowers should be very careful with consolidation.

There is no Undo – Once loans have been consolidated, there is no way to reverse the process. This means it is critical to avoid any potential mistakes.

Only Include Parent PLUS Loans – Some borrowers have Parent PLUS loans that were borrowed for their child as well as traditional federal student loans in their own name. If these two loan types get consolidated together, the combined loan will have limited eligibility for repayment plans and other federal programs, which can mean higher payments for the borrower. In most cases you will want to keep Parent PLUS loans separate from all other federal student loans.

The Steps Towards Parent PLUS Public Service Loan Forgiveness

1. Consolidate your Parent PLUS loan(s) into a federal consolidation loan.
2. Sign up for the ICR Plan with your lender.
3. Make 120 certified payments while in a public service position.
4. Apply to have the remainder of the debt forgiven.

Step number one requires going through the consolidation process just once. However, steps two and three require action on a yearly basis.

Signing up for ICR means that borrowers must certify their income every year. The income certification process usually takes very little time and can be completed online. This needs to happen each year so that the Department of Education can increase or lower payments based upon changes in income. Borrowers have the option of authoriziting the IRS to share tax information yearly to automate the process, but borrowers will still want to watch things closely to make sure payments are properly calculated.

Step three is best accomplished by sending in an employer certification form on a yearly basis. Though yearly certification of an employer’s eligibility isn’t explicitly required, it is a best practice for borrowers. This helps the borrower keep track of payments towards the required 120 and helps ensure that the borrower is meeting other PSLF eligibility criteria.

Also, keep in mind that when you complete step four, you must still be employed by an eligible employer. If you have left your job at a PSLF employer, you won’t get loans forgiven, even if you have worked the required 10 years.

Children In Public Service

Many Parent PLUS holders have reached out asking about whether their child’s work in public service has any bearing on the Parent PLUS loan qualifying for PSLF.

In theory, it would make sense. If the loan was borrowed to pay for an education that is now being used to serve the public, PSLF would seem appropriate.

Unfortuantely, it doesn’t work this way. The Department of Education is strict about PSLF rules, and PSLF eligibility is based entirely on the employment of the loan borrower. As a parent borrower, PSLF eligibility is based on your work, not your child’s work.

The Bottom Line

If the requirement to consolidate Parent Plus loans in order to be eligible for PSLF seems ridiculous, that’s because it is. This unnecessary red tape will likely prevent a number of families from achieving student loan forgiveness.

However, red tape or not, it is possible to have Parent PLUS loans forgiven… you just have to jump through the hoops.

If you are thinking about going this route, be sure to work closely with your lender to make sure you are dotting all your i’s and crossing your t’s. A mistake in paperwork can be the difference between a huge pile of debt being forgiven or not.

If you decide that Public Service Loan Forgiveness might not be the best option to repay your Parent PLUS loans, the good news is that there are other ways to repay Parent PLUS loans.

The post Public Service Forgiveness for Parent PLUS Loans appeared first on The Student Loan Sherpa.

This site hasn’t covered this loophole because it is complicated, and it is easy to make a mistake that can’t be fixed. More importantly, the loophole exists by exploiting a bug in the Department of Education recordkeeping system. Until recently, the Department of Education could have simply fixed the bug, and borrowers would have been left very disappointed.

A couple of things have changed. First, the Department of Education has arguably approved this new process — more on that in a bit. Second, many of you have asked questions about the process, and I don’t want to ignore your requests.

Double Consolidation Basics: How Parent PLUS Borrowers can Exploit a Loophole to get Lower Payments

Parent PLUS loans have limited repayment options compared to other federal student loans. Signing up for PSLF requires jumping through some hoops, and IDR payments are much higher than other plans.

This loophole allows Parent PLUS borrowers, who are normally only eligible for the ICR plan, to qualify for the SAVE plan. The potential savings is staggering. For example, a single borrower with two kids who earns $100,000 per year would pay about $349 on the SAVE plan. On ICR, the monthly bill jumps to about $1,236 per month.

Under the current rules, just about every federal student loan borrower can sign up for SAVE. The glaring exception is borrowers with Parent PLUS loans.

This is where the double consolidation loophole enters the equation. If a borrower consolidates their loans once, the new consolidated loan is tracked as a direct consolidation loan that contains a Parent PLUS loan. However, a secondary consolidation tricks the system into thinking there wasn’t originally Parent PLUS debt. The newly double-consolidated loan can then be enrolled in SAVE.

Double consolidation isn’t a strategy you will find on studentaid.gov, and it isn’t something the legislature or the Department of Education intended to create. It is a glitch in the system that borrowers found.

How the Department of Education Signed off on Double Consolidation

Given how desperate borrowers are to save money on their student loans, word of the double consolidation strategy spread pretty quickly. The Department of Education became aware of the issue.

The Department of Education officially acknowledged the process when the SAVE regulations were released. They announced that “[t]he Department is taking some additional steps in this final rule to affirm our position about the treatment of parent PLUS loans or Direct consolidation loans that repaid a parent PLUS loan being only eligible for the ICR plan.”

Essentially, they said we know about the bug and we are fixing.

Crucially, however, they said the changes would not take effect until July 1, 2025, AND they didn’t think taking away a benefit that borrowers had already received would be fair.

In other words, double consolidation is a glitch in the system, but the Department of Education knows about it, and they are allowing borrowers to utilize it until July 1, 2025. Any loan that is consolidated after that date will not receive the benefit of the loophole.

Parent PLUS Double Consolidation Risks

In the past, I warned borrowers who emailed me about double consolidation that the glitch could be fixed any day. Even if a borrower successfully double-consolidated, there was a risk that the Department of Education could fix the glitch and change their repayment plan back to ICR.

Thanks to the SAVE regulations, we now know that the Department of Education won’t be fixing the glitch until July 1, 2025, and we also know that borrowers who successfully took advantage of the glitch won’t lose their current repayment plan.

However, there are still risks associated with this process.

Double consolidation takes time. Student loan consolidation can take weeks or even months to complete. Going through the process multiple times takes even longer. If you wait until June 2025 to start the process, you won’t beat the July 1 deadline.

Double consolidation mistakes could be impossible to fix. If you make a mistake going through the double consolidation process, it could be impossible to fix if you catch it too late. The odds of a mistake are especially high because there isn’t an official guide, and servicers haven’t been trained on the process.

Lawsuits could change things. Generally speaking, student loan lawsuits focus on bigger items like the forgiveness program that went to the Supreme Court. Double consolidation is small enough that it may not be litigated. However, that doesn’t mean it won’t be litigated, and a court may conclude that the Department of Education didn’t have the authority to allow borrowers to take advantage of the glitch.

Things may change in the future. The element of unknown unknowns is a play here. Future administrations may try to claw back the regulation. Double consolidated loans may lose eligibility for future programs we don’t yet know about.

Many Parent PLUS borrowers may conclude that the benefit of substantially lower payments outweighs the potential risks. However, it is important to understand that there is a potential downside before starting the double consolidation process.

How to Use Double Consolidation and Sign up for SAVE

If you decide to go down the path of double consolidation, the Department of Education and loan servicers will not likely be much help. Don’t expect to see a guide to double consolidation show up on studentaid.gov.

Without an official blueprint, we are left to defer to the past experiences of others who successfully utilized the loophole.

Travis and the team over a Student Loan Planner have compiled a comprehensive step-by-step guide to double consolidation. They’ve been at the forefront of this issue for a while. Betsy over at TISLA also offers some helpful guidance on the double consolidation process.

A Few Final Thoughts

Double consolidation of Parent PLUS loans is a loophole, even though it now has a stamp of approval from the Department of Education.

For borrowers, this means guidance from servicers and the Department of Education will be limited. Don’t expect an easy process, and plan on spending time to make sure you don’t skip over any critical steps. Little things, like forgetting to submit a repayment plan request with your consolidation application, can cause issues.

However, the reward is massive if you are willing to live with the potential risks of a failed attempt and successfully get through the process. SAVE is considerably more affordable than ICR, and it can mean significantly smaller monthly payments and larger loan forgiveness.

The post Unlocking the Parent PLUS Double Consolidation Loophole: Navigating Benefits and Risks appeared first on The Student Loan Sherpa.

Consolidating loans can turn loans that are not eligible for certain programs into loans that are eligible. Years of legislative changes to student debt, combined with Department of Education fine print, can make things confusing.

Things can get especially difficult with Parent PLUS loans because of the limited options available for repayment and the steps required to enroll.

It is in this tangled-up web of rules and regulations that some borrowers make an incredibly expensive mistake. They consolidate their Parent PLUS loans with other federal loans.

Parent PLUS Loan Consolidation

Why is it a mistake to combine Parent PLUS loans with other federal loans?

There are certain limitations that apply to Parent PLUS loans. For example, Parent PLUS loans are not eligible for the best repayment plans. These plans include income-driven plans such as IBR (Income-Based Repayment), PAYE (Pay As You Earn), and SAVE (Saving on A Valuable Education). The only income-driven plan that Parent PLUS loans are eligible for is the Income-Contingent Repayment Plan (ICR).

To the average borrower, these plans all sound pretty much identical.  In reality, there are huge differences between these plans. All of these plans require borrowers to pay a certain portion of their discretionary income towards their student loans each month. The idea is that you pay what you can afford, regardless of how much you owe.

However, these plans require different percentages of your discretionary income. PAYE and SAVE are great because they only require 10%. IBR is a little bit more expensive, requiring borrowers to pay 15%. ICR is the most expensive, requiring 20%. Outside of the percentages, there are other differences between these repayment plans, but the important part is this: for many borrowers, signing up for ICR will result in double the monthly payment.

Why Does ICR Even Exist?

Once upon a time, ICR was the very best plan available.

For borrowers who didn’t have jobs, or who could afford their monthly payments, ICR was awesome. Payments were based upon income, not debt levels.

As time passed, Congress and the Department of Education decided that 20% was too high. A new plan came along requiring only 15% of a borrower’s monthly discretionary income, and IBR was born. As more time passed, new plans came along requiring only 10%.

Even though ICR was once the best, it has become an outdated dinosaur.

Unfortunately, for borrowers with Parent PLUS loans, it is the best plan that their loans are eligible for. Borrowers with a Parent PLUS loan cannot sign up for IBR, PAYE, or SAVE with that loan.

Sherpa Tip: If you have parent PLUS loans, the typical solution is to do a split consolidation. Parent PLUS loans go into one consolidated loan, and all other federal loans go into another consolidated loan.

One other option that is temporarily available for some borrowers is the double-consolidation loophole. This loophole will eventually get closed, but for now some borrowers may be able to get around the strict Parent PLUS rules.

The Big Parent PLUS Error To Avoid

The borrowers with their own federal loans and Parent PLUS loans have mixed eligibility problems.

Some loans can sign up for preferred repayment plans while others cannot. In this situation, the best option is usually to pay off the Parent PLUS loan first. Once that loan is eliminated, the other loans can be enrolled in the more generous repayment plans.

The worst thing that can be done is consolidating a Parent PLUS loan with other federal student loans into a federal direct consolidation loan. The government will then apply the restrictions that applied to the Parent PLUS loan to the new larger loan.

As an example, suppose a borrower has $25,000 in federal loans from when they went to school and $5,000 in Parent PLUS loans to pay for their child’s education. The borrower can combine the loans into a $30,000 direct consolidation loan. The problem is the government will treat the new loan with all the limitations of a Parent PLUS loan. The $25,000 that would have been eligible for IBR or REPAYE is now only eligible for ICR. It can be an expensive mistake.

Avoiding the Parent PLUS Consolidation Mistake

Combining Parent PLUS loans with other federal loans is almost always a mistake. There are many ways borrowers can get tripped up when consolidating.

First, the many different federal repayment plan options can make things confusing.

Second, even though combining Parent PLUS loans with other federal student loans is a huge mistake, borrowers do have the right to combine the loans in a consolidation.

Finally, many customer service representatives do not understand the magnitude of the mistake. If they don’t understand why it is a bad idea, they cannot warn borrowers before it is too late.

The Severity of the Situation

Once the loan is consolidated, there is no undo button. There is no fix.  A consolidated loan cannot be “unconsolidated.”

For many borrowers, this can mean decades of higher student loan payments due to one single mistake.

Sherpa Thought: I think there is a great argument for this rule to change. However, making that change a reality will require action from affected borrowers.

Bottom Line

Combining Parent PLUS loans with other student loans in a direct consolidation loan can be a lasting error. Unfortunately for many borrowers, it is an easy mistake to make, and there is no good way of fixing it.

(Editor’s Note: There are also Graduate PLUS loans… these loans sound very similar to Parent PLUS loans, but combining them with other federal loans is not the same huge mistake. The Graduate PLUS loans are eligible for the preferred repayment plans. Dealing with these loans is an entirely different circumstance.)

The post The Biggest Parent PLUS Loan Mistake… appeared first on The Student Loan Sherpa.

This particular mistake is so severe because it is permanent. There isn’t a mechanism currently available for borrowers to undo this consolidation.

There should be.

More importantly, there can be — if the government is sufficiently motivated to make it happen.

The Need to Separate Parent PLUS Loans from Other Consolidated Loans

The problem with combining Parent PLUS loans with other federal student loans in a single consolidation loan boils down to eligibility.

Most federal loans are eligible for a range of income-driven repayment plans, including the new SAVE plan. Monthly payments can be as little as 5% of a borrower’s discretionary income, and forgiveness can take as little as 10 years.

The only income-driven repayment plan for Parent PLUS loans is the ICR plan. On ICR, forgiveness takes 25 years, and borrowers must pay 20% of their discretionary income. Making matters worse, the discretionary income definition is different for the ICR plan, meaning a larger portion of a borrower’s income is subject to student loan payments.

When a Parent PLUS loan gets added to a consolidation loan, it acts as a poison pill. The entire consolidated loan loses eligibility to all of the income-driven repayment plans except ICR. This means larger payments each month and a longer wait until forgiveness.

The Need to Undo Federal Consolidated Loans

Outside of taking advantage of a temporary loophole or utilizing the one-time IDR Count Adjustment to fast-track forgiveness, borrowers shouldn’t be combining their Parent PLUS loans with their other federal loans.

Unfortunately, it still happens all the time.

In many cases, it is a student loan servicing issue. Sometimes, borrowers make this mistake on their own. Other times, they make the mistake under the guidance of their servicer. Either way, there should be protections in place to prevent this mistake from happening.

The Blueprint to Unconsolidate Loans

For decades, a consolidated loan was final. It is a new loan; it paid off the old loans in full, and there was no going back.

Recently, legislation was passed to allow spouses to separate Federal Joint Consolidation loans. Though Joint Consolidation loans haven’t been available for years, many couples were stuck with limited repayment options for massive loans. The fix for Joint Consolidation is complicated,q and implementing it has taken a lot of time.

Nonetheless, a process is being created. What was once a large consolidated loan can soon become separate student loans.

When the Joint Consolidation Separation process is finalized, it could serve as a blueprint for separating Parent PLUS Loans from other loans in federal direct consolidation loans.

Hope for Borrowers with Parent PLUS Loans Looking to Separate Their Consolidation Loan

There appears to be an understanding with many in the federal government that student loan servicers have sometimes failed borrowers.

To correct these failures, government programs have been created to assist borrowers who may have been negatively impacted. For example, the Limited Waiver on PSLF helped borrowers who might have received inaccurate guidance about the Public Service Loan Forgiveness Program. Likewise, the one-time IDR Count Adjustment allows borrowers who were directed to deferments, forbearances, and balance-based repayment plans when they would have been better off signing up for an income-driven repayment plan.

If the government becomes aware of the severity of the Parent PLUS loan consolidation issue, they might finally take action to help this group of borrowers.

Sherpa Thought: My focus today has been to advocate for a pathway for borrowers to consolidate or separate their consolidation loans.

Another fix for this particular Parent PLUS loan issue would be to make Parent PLUS loans eligible for the SAVE plan. Thus far, the Department of Education has refused to expand SAVE eligibility to Parent PLUS loans.

The Necessity of Borrower Action

Policymakers are often pretty far removed from the day-to-day experiences of borrowers.

Many don’t fully understand student loan policy or how borrowers have been negatively impacted by the servicers contracted by the government to help borrowers.

The key to getting this problem fixed is to shine a spotlight on the issue.

Impacted borrowers can take three steps to make it known that they are unfairly stuck with Parent PLUS loans in a consolidated loan.

I’d encourage borrowers to do all of the following:

• File a Complaint with the CFPB. The Consumer Financial Protection Bureau does a great job of tracking and documenting borrower issues. Past borrower complaints to the CFBP have led to lawsuits against servicers and policy changes. Filing a complaint with the CFPB is an easy process for borrowers.
• File a Complaint with the Department of Education. If you want the Department of Education to fix a problem, they must know it exists. The more people who leave a complaint with the Department of Education, the more severe the problem will appear to be and the more likely it is that the government will take action.
• Call and Email Members of Congress. Student loans have become a politically charged topic, but the Joint Consolidation Separation Act is a good example of how Congress can fix a problem when needed. Here again, the more calls and complaints that elected officials receive, the more likely they will be to act.

If you endure in silence, unnecessarily paying extra each month, things may never change.

The post Consolidation Undo: Seperating Parent PLUS Loans from Consolidated Loans appeared first on The Student Loan Sherpa.

However, before going any further, it is crucial to point out that just because you can transfer the debt, it does not mean that you should transfer the debt.

In this article, I’ll first explain how the process works and the steps to get it done. Then I’ll explain why it is a potentially risky move.

The Process to Transfer Parent PLUS Loan Debt to Children

When a Parent PLUS loan is issued, the debt belongs only to the parent. The child for whom the loan was used has no legal obligation to repay the loan.

Additionally, the federal government provides no avenue to transfer the debt from the parent to the child. The parent owes the money until it gets paid in full.

This is where our workaround enters the picture. Some student loan refinance lenders will allow the child to refinance the debt.

When you refinance a loan, the refinance lender will create a new loan with new loan terms. The money from that loan is used to pay off an older loan. In this case, the child gets a new refinance loan, and the money pays off the Parent PLUS loan.

After the refinance, the parent’s loan and debt obligations are eliminated, and it becomes the responsibility of the child to repay the loan.

Lenders that Allow Children to Refinance Parent PLUS Loans

The following lenders will help families transfer Parent PLUS debt from the parent to the child:

Lender	Interst Rates	Loan Length
	4.69%* – 9.99%	$5,000 – No Max
Application + Up to $500 Bonus	Splash Financial Review: Splash has competitive rates, but they start slightly higher than the top lenders. Splash also offers unique 8 and 12 year repayment terms.
	4.86% – 8.44%	$10,000 – No Max
Application + $150 Bonus	ELFI Review: ELFI routinely offers excellent interest rates. Even though ELFI is new, it is the product of a regional bank that has been in business for decades.
	4.49% – 9.99%	$5,000 – No Max
Application	SoFi Review: SoFi is the biggest name in student loan refinancing for a simple reason – their rates are reliably among the best on the market.

Many other lenders, such as Earnest, will refinance Parent PLUS loans, but they will not allow the parent to transfer the debt to the child.

Parent PLUS Refinance Limitations

It’s worth pointing out that the refinance lenders are private companies out to make a profit. Their business model depends on finding borrowers likely to repay the loan.

Additionally, not all refinance lenders will allow children to repay Parent PLUS loans.

Combining these two factors means this option will not work for all families. Getting approved for a new loan will be challenging if your child struggles financially or has a troubled credit history.

Additionally, refinancing federal debt into a private loan comes with significant concerns.

Transferring Parent PLUS Loans to Your Child is Risky

Compared to other federal student loans, Parent PLUS loans are not great. They have limited repayment options, and qualifying for forgiveness has an extra layer of difficulty.

However, they are still federal loans. As federal loans, borrowers can access federal perks like income-driven repayment and loan forgiveness.

Private refinance loans don’t offer these protections.

If your child refinances and then loses their job or faces a financial emergency, the private lenders will be less accommodating. Some may offer a temporary deferment or hardship forbearance, but the debt eventually must get paid in full.

Sherpa Tip: Parent PLUS loans are a headache at times, but they work nicely for borrowers who are living on social security.

Even at a higher interest rate, keeping a Parent PLUS loan with the parent can be the most affordable path to debt elimination.

Other Options for Assistance from a Child

Rather than refinancing the Parent PLUS loan, a child can assist with repayment in many other ways.

For starters, the child can help their parent navigate the federal student loan consolidation process so that the parent can qualify for the Income-Contingent Repayment Plan. They can also help their parent with the yearly income documentation required for IDR repayment.

Additionally, the child can help with payments even if the debt isn’t in their name.

These fixes won’t help the parent’s debt-to-income ratio, but they can still make living with a Parent PLUS loan more tolerable.

When Refinancing a Parent PLUS Loan Makes Sense

I usually tell borrowers considering a refinance of their federal loans only to do it if they are reasonably certain they won’t need any of the federal perks, protections, and benefits.

I’d take that advice a step further when it comes to transferring Parent PLUS loans to children. If the parent may qualify for forgiveness or if the child might struggle with the private refinance loan, the transfer becomes quite dangerous.

However, if repayment in full is a certainty and the only question is how much gets spent on interest along the way, refinancing can make sense. Parent PLUS loans have the highest interest rates of all federal loans. Thus, there is potential for a dramatic reduction in interest spending.

Transferring the debt is also an excellent way for a grateful child to remove a burden off their parent’s plate. Additionally, if mom or dad wants to qualify for a mortgage, transferring the debt can help.

If refinancing to transfer a Parent PLUS loan to a child is the right move for your family, you’ll want to focus on the short list of refinance lenders that offer this service.

The post How to Transfer Parent PLUS Loans to Your Child appeared first on The Student Loan Sherpa.

Most experts, myself included, believe that federal direct student loans are the best option for the vast majority of borrowers. The downside with federal loans is that the borrowing limits are quite low for undergraduate students.

To cover the remaining gap, many families opt for one of the following three options:

1. Parent PLUS loans made directly to a parent
2. Private loans are issued to the child but usually cosigned by a parent
3. HELOC loans to tap into your home’s equity

Each option has distinct advantages and risks, and there isn’t any way to rank these choices. A private loan might be the best choice for some families, while others are better off with a HELOC loan or a Parent PLUS loan. The purpose of this article is to help families determine the best loan for their individual circumstances.

A Warning from the Sherpa: In some cases, the best loan is no loan at all. College is increasingly expensive. Before determining the best loans, make sure the college and program selected is the right investment.

Parent PLUS Loans: Federal Loans with a Catch

Parent PLUS loans are federal student loans, but they have a few significant limitations.

For starters, in a Parent PLUS loan, the parent is legally responsible for repaying the loan. The student never receives a bill, and the loan doesn’t appear on their credit report.

As federal loans, Parent PLUS loans are eligible for income-driven repayment and student loan forgiveness. However, there is another catch. The ICR plan is the only income-driven repayment plan available for Parent PLUS loans. ICR payments are the highest out of all the federal IDR plans. Additionally, enrolling Parent PLUS loans in ICR is complicated as borrowers must first consolidate. Likewise, earning Public Service Loan Forgiveness is also more difficult for Parent PLUS borrowers.

Despite these limitations, Parent PLUS loans offer great borrower protections.

Who Benefits from Parent PLUS Loans?

If you are worried that you might not be able to afford the debt, Parent PLUS loans are probably the safest of the three options in today’s comparison.

If you are nearing retirement age, Parent PLUS loans are often an excellent choice. Borrowers living on social security often qualify for $0 monthly payments for their Parent PLUS loans.

When are Parent PLUS Loans a Mistake?

If you only need the money for a short period of time, Parent PLUS loans might be a bad option. Parent PLUS loans have the highest loan origination fees out of all federal loans. They also have the highest interest rates of all federal student loans.

If you expect to borrow money to help a child pay for school and have no doubt in your ability to repay the debt eventually, looking elsewhere might be the best choice. Parent PLUS loans have the most extensive safety net, but the price of that safety net is higher interest rates and origination fees.

Paying for College with Private Student Loans

Students technically could borrow private loans without the help of their parents. However, to qualify, they need a decent credit history and income. Thus, most private loan borrowing requires the help of a cosigner.

As a cosigner, the parent has the legal responsibility to repay the debt if the child cannot make payments. Sadly, this legal burden happens far more often than most parents expect. If a student doesn’t graduate or can’t find a job, they may not be able to afford their loans. Even if the student finds a job, they still might struggle to repay their loans. Cosigners must be prepared to take over repayment.

Additionally, if the student dies before repaying the loan, the cosigner may have to repay the loan under the terms of the loan agreement. For this reason, a life insurance policy may be a good idea for cosigners.

The big benefit of a private loan is that interest rates could be considerably lower than on a Parent PLUS loan. The key is to shop around and check rates with various different lenders.

When is a Private Loan the Best Choice?

Private loans are riskier than a Parent PLUS loan, but the interest rate is often much lower.

If you need cash to pay for the next semester or two and expect the repay the debt relatively quickly, a private loan is probably the best option.

Another advantage to private loans is that they may help your child establish a credit history. It’s not the best way to build a credit profile, but it does come in handy for some borrowers.

When to Avoid Private Loans

Overwhelming private loan debt is a nightmare.

Private lenders are far less flexible when it comes to repayment plans and struggling borrowers. Too much private debt can result in unaffordable bills and a destroyed credit profile.

Additionally, massive private debt can also be an issue for students who want to buy a house after graduation. While the debt can help a credit score, it can devastate a borrower’s debt-to-income ratio. Numerous private student loans can make it difficult for both the borrower and the cosigner to qualify for a mortgage.

Using Home Equity Lines of Credit to Pay for College

With home values growing dramatically over the last few years, many parents what to use that equity to pay for college.

The big advantage of the HELOC approach is that banks may offer very low interest rates.

The problem with this strategy is that you are risking your house if you can’t pay the bills.

Using a HELOC to pay for school is a high-risk/high-reward decision. The actual cost of borrowing may be the lowest, but the danger of not making payments is by far the highest.

Sherpa Tip: Don’t assume that a HELOC will have lower interest rates than a private loan. It is certainly possible that the best rate comes from a HELOC loan, but private loan lenders may offer even better rates.

If interest rates are the biggest priority, check rates with both HELOC lenders and private loan lenders.

Deciding Between a HELOC, Private Loan, and a Parent PLUS Loan

For many families, the how to pay for college question is a question of risk aversion. Parent PLUS loans usually get the edge if there is a concern about keeping up with payments. As the risk of repayment concerns drops, chasing interest rates becomes the ideal approach.

However, there are other factors to consider. Parent PLUS loans only show up on the parents’ credit reports. Private loans usually appear on the credit report of the borrower and the cosigner.

Finally, there is the question of availability.

HELOC loans are limited by your home’s equity. Private loans become harder to qualify for as your debt accumulates. Parent PLUS loans have fewer limitations. For this reason, it is vital to think years in advance. The ideal strategy looks at how to pay for an entire degree rather than just one semester.

The post Parent PLUS Loans vs. Cosigning Private Loans vs. HELOC Loans appeared first on The Student Loan Sherpa.

Today’s article is about perspective and available options. I’ll explore what the rules say and discuss strategies for preventing conflicts.

Does the Student or Child Have a Legal Obligation to Pay for the Parent PLUS Loan?

I’ve received many emails from parents frustrated that their child hasn’t been making Parent PLUS loan payments.

Legally, the responsibility to make these monthly payments falls squarely on the parent. The student loan contract is between the government and the parent. The loan was taken out in the parent’s name and, so, it’s the parent who has the obligation to repay the entire loan balance. Although the child is the one who benefited from the loan, they are not required to repay the debt.

In theory, a parent and child could have a separately created contract requiring the child to repay the parent. However, such an agreement wouldn’t affect the parent’s legal obligation to the government. If repayment isn’t made, the Department of Education would look to collect the money from the parent. The parent’s only legal recourse would be to sue the child for breaking the contract between the parent and child.

In short, both the law and the loan terms are clear that the repayment of a Parent PLUS loan is the parent’s obligation.

Children May Have a Moral or Ethical Duty to Help

Although the legal responsibility for repaying Parent PLUS loans rests with the parents, a case can be made that the child has a moral obligation.

Parents don’t personally benefit from Parent PLUS loans. The sole purpose of taking on such a loan is to help the child further their education. Taking on a Parent PLUS loan is a selfless act. If you benefited from a Parent PLUS loan, you should do your best to ensure that the borrower doesn’t regret their decision.

Even if making payments is financially challenging for the child, there are various ways they can contribute and show appreciation for the support received.

Even if the child cannot afford to make payments, there are other ways in which they can contribute and show appreciation for the support they received.

Getting Parents and Children on the Same Page

The strange thing about Parent PLUS loan repayment is the ambiguity about repayment responsibility.

Under the law, it is the parent’s job. Morally and ethically speaking, the child should help whenever possible.

There are a variety of options for managing Parent PLUS loans, including:

• Income-Driven Repayment
• Student Loan Forgiveness
• Public Service Loan Forgiveness

Programs like these provide borrowers with ways to reduce their monthly payments and, in some cases, qualify for debt forgiveness. This article breaks down the many options available for Parent PLUS loan repayment. It is even possible for Parent PLUS loan borrowers to manage the debt living on limited income sources, such as social security.

Given the breadth of available repayment options, parents and their children can usually devise a reasonable plan for managing the debt together. The key is maintaining open and honest communication about everyone’s financial realities and focusing on finding solutions rather than finger-pointing and making accusations.

Transferring Parent PLUS Loans to the Student

I often hear from children who would like to transfer Parent PLUS loans into their name.

While commendable, this decision isn’t without its drawbacks.

Some student loan refinancing companies, like SoFi, offer services to pay off existing Parent PLUS loans and replace them with a new loan in the child’s name. While this move might seem like an ideal solution, it’s important to understand the implications and risks.

Refinancing in this manner changes the loan from a federal to a private one, which means it loses eligibility for federal benefits like income-driven repayment plans and student loan forgiveness programs. While refinancing to a private loan might offer lower interest rates, it also removes these federal protections. This decision should be made with caution, especially if there’s any uncertainty about the ability to repay the debt fully

This option converts federal student debt into a private loan. As a private loan, the debt loses its eligibility for federal benefits like income-driven repayment or student loan forgiveness. It’s true that borrowers may qualify for lower interest rates by choosing the private refinancing route. However, unless the borrower is certain they can afford to fully repay the debt, this decision should be made with caution.

When Your Child Isn’t Making Payments

Unfortunately, there isn’t an easy answer to this problem.

In most cases, the best path forward is recognizing that working together is the best way to manage the debt.

The post Help! My Child Isn’t Making Parent PLUS Loan Payments appeared first on The Student Loan Sherpa.

Unlike nearly all other kinds of student debt, the parent borrows the money rather than the student. This dynamic causes confusion when researching topics, such as federal program eligibility, repayment plan selection, student loan forgiveness options, and when making strategic decisions.

The good news is that borrowers can avoid the confusion and repay their Parent PLUS loans without too much stress. By taking the proper steps, borrowers of Parent PLUS loans can enroll in an income-driven repayment plan and even qualify for student loan forgiveness. In some circumstances, parents can also transfer the Parent PLUS loan debt to their child.

With the many ways to repay Parent PLUS loans, Parent PLUS loan repayment should never endanger a retirement plan or jeopardize a parent and child’s relationship.

Parent PLUS Loan Repayment Plans

The federal government is stingy when it comes to Parent PLUS loan repayment. Parent PLUS loans have the highest interest rates and loan origination fees. They also have the fewest repayment plan options.

The repayment plan options available to all Parent PLUS borrowers are the standard repayment plan, the graduated repayment plan, and the extended repayment plan. For some borrowers, these default options are acceptable. For others, however, these limited options are a significant problem. This is especially true for Parent PLUS borrowers who cannot afford any monthly payments or who need a path to student loan forgiveness.

The good news for borrowers struggling with Parent PLUS loan payments is that it is possible to enroll in an income-driven repayment plan.

Enrolling in an Income-Driven Repayment Plan

Although Parent PLUS loans are not initially eligible for an income-driven repayment plan, federal direct consolidation can fix that issue.

When a borrower consolidates a Parent PLUS loan through the Department of Education, it becomes a Federal Direct Loan. All borrowers are eligible for federal direct consolidation regardless of loan status, credit score, or income. The Department of Education estimates that completing the application for consolidation takes less than 30 minutes.

A Word of Caution: There is a risk to taking the federal consolidation approach.

One of the most common mistakes is to consolidate Parent PLUS loans with other federal student loans. If a borrower combines a Parent PLUS loan with other federal direct loans, the resulting consolidated loan has limited repayment and forgiveness options.

Due to the possibility of making an ill-advised consolidation, borrowers should carefully consider the implications of consolidating before starting the process.

Once federal consolidation is complete, borrowers can enroll in the Income-Contingent Repayment (ICR) plan.

$0 Payments for Parent PLUS Loans

Enrollment in the ICR plan means borrowers can make payments based upon their income rather than what they owe. Borrowers who are unemployed or have low salaries can have payments as low as $0 per month. For example, Parent PLUS loan borrowers living on Social Security are likely to have $0 per month ICR payments, assuming they do not have additional income sources.

Parent PLUS loan borrowers on the ICR plan are expected to pay 20% of their monthly discretionary income towards their debt. Discretionary income is the money a borrower earns beyond the federal poverty level. Borrowers can find full details on discretionary income calculations here, but the quickest way to estimate ICR payments is to use the federal student loan simulator.

Parent PLUS Loan Repayment Options and IBR, PAYE, and SAVE

While the ICR plan charges borrowers 20% of their monthly discretionary income, other federal repayment plans cost less.

The Income-Based Repayment (IBR) Plan, Pay As You Earn (PAYE) Plan, and Saving on A Valuable Education (SAVE) Plan all charge between 5% and 15% of a borrower’s discretionary income. Unfortunately, Parent PLUS loans cannot be eligible for these plans, even with federal direct consolidation.

Getting Lower Interest Rates on Parent PLUS Loan Repayment

Parent PLUS loan borrowers are not eligible to get lower interest rates on their Parent PLUS loans under any circumstance. The only exception would be the .25% interest rate reduction offered to borrowers who make automatic payments.

Borrowers looking for lower interest rates will have to refinance their loans with a private lender. Refinancing causes the loan to lose federal perks such as the ICR plan and student loan forgiveness, but it also helps the borrower qualify for a lower interest rate.

About 20 different national lenders offer student loan refinancing services, but not all of them will refinance Parent PLUS loans. Lenders who will refinance Parent PLUS loans include SoFi, ELFI, and Splash Financial. These three lenders all offer interest rates starting around 5%.

Transferring Parent PLUS Loan Repayment to Children

The federal government does not offer a path for moving Parent PLUS loans to the children who benefitted from the loan.

While children are permitted to make payments for the debt, the federal government does not care if a child made promises to make payments on the loan. The Parent PLUS loan is a contract between the government and the parent. The government holds the parent accountable for the payments.

Consequently, the parent who took out the Parent PLUS loan will always remain the one legally responsible for it. The debt will appear on the parent’s credit report and, if someone isn’t making payments on the loan, the parent will be in default and possibly sued.

However, even though the government will not let borrowers transfer the debt to their children, there is a work-around that can help in some circumstances.

Refinancing Parent PLUS Loans in Child’s Name

Some student loan refinance companies will be willing to refinance a Parent PLUS loan in the name of the child who borrowed the loan.

The process is similar to a standard student loan refinance:

• The child who benefitted from the Parent PLUS loan applies to refinance the loan.
• If the refinance lender approves, the lender will pay off the Parent PLUS loan in full.
• The child is then responsible for repaying a new private loan with new terms.
• The parent has no further legal responsibilities for the debt.

Unfortunately, the list of companies willing to participate in this process is relatively small. One lender that does advertise Parent PLUS refinancing in the name of the child is SoFi.

This significant advantage to this move is that it eliminates both the Parent PLUS loan and the parent’s legal obligations. Also, depending on the child’s credit score and income level, they may get a lower interest rate.

The disadvantage to this move is that making the loan private eliminates the federal repayment plan and loan forgiveness options.

Student Loan Forgiveness for Parent PLUS Loans

There are several different circumstances in which the government may forgive a Parent PLUS loan.

Public Service Loan Forgiveness (PSLF) – Parents employed by a public service employer, such as the government or a 501(c)(3) may be eligible for PSLF. Going this route will require federal direct consolidation before the 10-year forgiveness clock starts. Borrowers need to pay close attention to the details in the process of loan consolidation, ICR enrollment, and acquiring PSLF certification. Those thinking about pursuing this path should understand the steps and the requirements for PSLF for PLUS Loans. Missing a requirement may mean starting over from scratch.

Income-Driven Repayment Forgiveness – Parent PLUS loan borrowers who enroll in the ICR plan can have their loans forgiven after 25 years, regardless of their employer. Forgiveness after 20 to 25 years is a standard term on all of the income-driven repayment plans. The downside is that after 25 years, borrowers with forgiven loans may have to pay a tax bill on the debt forgiven. The IRS treats this forgiven debt as income in the year it is forgiven.  Borrowers pursuing forgiveness via this route should prepare for the massive future tax bill.

Death and Disability Discharge – If the parent who borrowed the Parent PLUS loan becomes permanently disabled or dies, the government will forgive the remaining debt. Similarly, if the student for whom the loan was borrowed dies, the Parent PLUS loan can be forgiven. Loans that fall into these categories have a special application procedure for the discharge.

Using 401(k) or Other Retirement Funds

Because the repayment options for Parent PLUS loans are not ideal, many parents consider using 401(k) funds or other retirement accounts to pay down the debt.

We do not recommend using retirement funds to pay down student debt.

The analysis is straightforward. Once a borrower moves their money from their retirement account and applies it to the debt, there is no turning back. The borrower loses that money forever.

Dealing with Parent PLUS loans may be a hassle, but taking money out of a retirement account turns a student loan issue into a retirement issue. While there are options to deal with a Parent PLUS loan without any income, retirement options without any income are far more limited.

Final Thought

Parent PLUS loan repayment can get very complicated, very quickly. For this reason, it is a good idea to make repayment a team effort.

Both the parent who borrowed the loan and the student who benefitted from the loan should research and understand the repayment options and strategies. By working together, they can avoid mistakes and find an approach that works well for everyone involved.

The post A Guide to Parent Plus Loan Repayment appeared first on The Student Loan Sherpa.

What isn’t up for debate is the fact that paying off Parent PLUS loans can be difficult, and at times, complicated. Regardless of who is paying the bill, children who benefited from a Parent PLUS loan should help their parents navigate repayment.

Parent PLUS Repayment Basics

Paying off Parent PLUS loans can be more complicated than other student loans. Repayment of Parent PLUS loans is also difficult because these loans carry the highest interest rates of all federal student loans.

The typical repayment plans for a Parent PLUS loan are the standard repayment plan, the graduated repayment plan, and the extended repayment plan. The downside to these repayment options is that monthly payments can be very high for borrowers with larger amounts of debt.

Borrowers can repay Parent PLUS loans on an income-driven repayment plan by enrolling in the Income-Contingent Repayment (ICR) Plan. However, this enrollment first requires that borrowers go through federal direct consolidation. The process isn’t difficult, but borrowers should be careful to follow the proper procedure.

The Role of the Student/Child in Repayment

From a legal standpoint, the child has no responsibility for repayment. The Parent PLUS loan is in the name of the parent, it is on the parent’s credit report, and it is the parent who is obligated to pay off the debt.

One area where children can be especially helpful in navigating the government red tape. Student loan servicers are a great source of frustration for many millennials, but for older parents who are less tech-savvy, things can be overwhelming.

Children can help explain the different repayment plans and assist with getting signed up. Parent PLUS loan borrowers who are approaching social security age should make sure that they avoid and social security garnishments. Most borrowers on social security should be able to get $0 monthly payments, provided that they take the necessary steps.

Put simply, student loan repayment can be a minefield. Having two people working is much better than just one.

Don’t Forget About Forgiveness

Borrowers with large amounts of Parent PLUS debt and limited income may fear that they will never be able to pay off the loans.

The good news is that Parent PLUS loans have two paths to student loan forgiveness.

The quickest route to forgiveness is the Public Service Loan Forgiveness (PSLF) Program. Parents who work for the government or a 501(c)(3) non-profit can have their loans forgiven after 10 years worth of “qualifying payments”. Qualifying for PSLF can be especially complicated for Parent PLUS loan borrowers, so it is critical to research the process of getting Parent PLUS loans discharged via Public Service Loan Forgiveness.

Another option for Parent PLUS loan forgiveness is to qualify by making 25 years worth of payments on the ICR plan. This option takes an extended amount of time, but it means that all Parent PLUS loan borrowers have a path to loan forgiveness.

Finally, in the event of the death of the Parent PLUS loan borrower or the student for whom the loan was borrowed, the loan will be discharged.

Refinance Options

Borrowers who are confident the will be able to pay the Parent PLUS loan off in full may elect to refinance the loan with a private lender. Not all refinance companies are willing to refinance Parent PLUS loans, but we have confirmed that SoFi is one lender that does provide this service.

The major downside to refinancing is that monthly payments based upon income are no longer an option. Additionally, most private lenders do not offer any loan forgiveness program. Thus, this option should only be considered by those confident in their ability to pay off the loan in full and looking for a reduced interest rate.

Who Should Make the Parent PLUS Loan Payments?

Now that we have covered the mechanics of Parent PLUS loan repayment, it is worth covering an issue that is far less black and white.

Even though the parent bears the legal responsibility to pay off the debt, it is the child who benefitted from the loan.

It is the opinion of this student loan expert that one of the most important considerations is the conversations and expectations that were discussed at the time the loan was borrowed. Some Parent PLUS loans are borrowed and both the parent and the child have the understanding that the parent will be repaying the loan. In other families, the parent borrows the loan but does so with the expectation that the student will help repay the debt once they finish school.

When there is confusion, the most important thing is to have an open dialogue. I’ve received numerous emails from readers who are feuding with a family member over repayment of student debt. Feelings can be hurt when dealing with financial matters, so it is critical to have any conversation with an open mind.

Researching repayment options ahead of time can also make a big difference. Handling student loans is far less scary if you understand your options. Don’t let student debt ruin an important relationship with a loved one.

Keep Children Involved in Repayment

If eliminating Parent PLUS loans is a family objective, deadlines are less likely to be missed, and mistakes are less likely to be made.

Parent PLUS loans can be the source of a major family rift, or they can be a challenge conquered as a team.

The post How Children Can Help Parents Repay Parent PLUS Loans appeared first on The Student Loan Sherpa.

Some seniors face huge bills and must make major sacrifices. Others, despite their best efforts, find their social security checks garnished due to student loans.

There is good news for student loan borrowers living on social security. If they take the right steps, it’s quite possible that they may never have to make another student loan payment.

Income-Driven Repayment Plans for Parent PLUS Borrowers

One major advantage to federal student loans is the availability of Income-Driven Repayment (IDR) plans. The significance of an IDR plan is that it allows borrowers to make payments based upon what they can afford rather than what they owe. For many borrowers, this means they could potentially qualify for payments as low as $0 per month.

IDR payments are calculated by determining the borrower’s discretionary income. The higher the discretionary income, the higher the monthly bill is.

Without going into the full details on discretionary income calculations, borrowers who live on social security and have no other income will likely qualify for a $0 per month payment.

However, there is a catch with Parent PLUS loans: they are not directly eligible for any federal income-driven repayment plans. Fortunately, there is a workaround. Borrowers can convert Parent PLUS loans into eligible loans by going through federal direct consolidation. After consolidation, Parent PLUS loans become eligible for the income-contingent repayment (ICR) plan.

ICR is not the best income-driven repayment plan, but it is the only option available for Parent PLUS loans. The important part to know is that ICR is eligible for $0 monthly payments.

Parent PLUS Loans vs. Other Federal Loans: Parent PLUS loans are different than other kinds of federal student loans. Borrowers living on social security who have other federal loans have more options and flexibility in repayment.

Federal Direct Consolidation

We will skip the history lesson on federal student loans that explains why federal direct consolidation is necessary for the ICR plan. This extra step is government red tape at its worst, but thankfully the consolidation process is pretty simple.

The Direct Consolidation Loan Application is available through the Department of Education’s student loan website. According to the Department of Education, it takes about 30 minutes to complete the application.

They do a nice job explaining the process, but a couple of essential details are worth highlighting:

1. Even if you have just a single Parent PLUS loan, you can still consolidate the loan.
2. Do not consolidate Parent PLUS loans with other federal student loans – the other federal loans lose their eligibility for certain repayment plans if combined with a Parent PLUS loan.

A Warning About ‘Help’ with Consolidation: There have been services that have popped up over the years, offering to help borrowers go through the consolidation process to get $0 per month payments.  These “services” are usually shut down fairly quickly by the government. Most are nothing more than a scam. Borrowers shouldn’t pay for outside help to consolidate and enroll in an income-driven repayment plan.

Three Steps for $0 Student Loan Payments for Social Security Recipients with Parent PLUS Loans

Step #1: Apply for federal direct consolidation.

Visit the direct consolidation website and fill out the form. Be sure that Parent PLUS loans do not get combined with other types of federal student loans (if you also have other federal loans). If you get confused or need help, contact your federal student loan servicer for guidance.

Step #2: Sign up for an Income-Driven Repayment (IDR) Plan

For borrowers with Parent PLUS loans, the only IDR plan that they will be eligible for is ICR. Borrowers can submit IDR applications on the Studentloans.gov website. The easiest way to verify your income is to have them automatically pull your most recent tax return. However, if your income has dropped since your last tax return, you may want to submit alternative documentation.

Step #3: Certify income every year

Your student loan servicer should remind you each year, but it is important to certify your income each year. This will keep payments low and manageable. If the monthly payment suddenly jumps up, it is likely because you missed a certification deadline. If that happens, complete the IDR request again.

How does the loan get paid off with $0 payments?

If you are making $0 monthly payments, the loan balance will only grow. Though unfortunate, it is the only option for many senior citizens on the fixed income of social security.

There are provisions to have the loans forgiven after 25 years, but the reality for many seniors is that they will certify their income yearly and never make any payments on the loan.

Estate Planning Concerns

For those worried about their federal student loans persisting after their death, there is reassuring news.

A fundamental feature of all federal student loans is that the debt is extinguished upon the borrower’s death. This means that if you pass away with an outstanding student loan balance, the government will not seek repayment from life insurance payouts or any inheritance you leave behind for your children.

The death discharge process is fairly straightforward and designed to prevent additional burdens on the borrower’s family.

Digging Deeper: Learn how to manage student debt during your retirement.

Dealing with Parent PLUS loans and Living on Social Security

The steps required for Social Security recipients to ensure their checks don’t get garnished is probably more complicated than necessary. Fortunately, jumping through a bit of government red tape will address the issue.

To make sure that steps don’t get missed, it is a good idea to have your child remind you of deadlines and help you with the paperwork. Given that you took out the loan to pay for their school, it is the least they can do.

The post Parent PLUS Loan Repayment for Borrowers on Social Security appeared first on The Student Loan Sherpa.