Feeling stuck in a Parent PLUS Loan? You’re probably looking for the easiest way out of it, including getting the whole debt forgiven. But is Parent PLUS Loan forgiveness real? And what are your options to get rid of this thing for good? Let’s find out.
Is Parent PLUS Loan Forgiveness Real?
So you did it: After your child didn’t receive enough financial aid for undergad schooling, you decided it would be a good idea to sign up for a Parent PLUS Loan. Now you’re wondering if having it forgiven is an option.
Yes, there are a couple of ways to have your Parent PLUS Loan forgiven—but there are a lot of conditions and caveats around that possibility. So the short answer is that forgiveness does happen, but it’s both rare and difficult to pull off.
One thing that does not exist today is any option to have a Parent PLUS Loan canceled overnight. Both of the student loan forgiveness routes in place right now require you to make many years of payments before you can even become eligible to apply for forgiveness.
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(That being said, there is talk around Washington of doing some kind of blanket forgiveness for federal student loans—but the details are hazy at best. More on how it could impact Parent PLUS borrowers below.)
As for existing programs, even after hitting the required number of payments, many borrowers find that the forgiveness they’ve been looking forward to for years ends up being denied—often for technical reasons they had no idea could derail their plan.The bottom line on the reality of Parent Plus forgiveness is it’s a crapshoot: You might hear of someone winning here and there, but it’s not common. And basing your financial plans on it would be ridiculous.
Public Service Loan Forgiveness
Public Service Loan Forgiveness (PSLF) is the first way you might be able to get a Parent PLUS Loan forgiven. The best thing we can say about PSLF as a strategy is that at least the 10-year time investment is much shorter than the 25 you’ll need to get an income-contingent forgiveness discussed below.
But still, it’s 10 years of your life! And there are strict rules to remain eligible for PSLF! Like what?
Rules for Public Service Loan Forgiveness
During your years of servitude trying to get the theoretical forgiveness of your loan balance, you must do all of the following:
- Work for a federally qualified employer, like a government agency or nonprofit.
- Work there full time (defined as a minimum of 30 hours weekly) and maintain full-time hours throughout your years in the PSLF program.
- Make—and prove that you’ve made—on-time payments for 10 years. That’s 120 payments in a row without missing a beat. And trust us, the Department of Education has been known to deny someone forgiveness after 10 years of payments over one late payment. That just doesn’t seem very . . . forgiving, now does it?
- Have a Direct Loan (and yes, a Parent PLUS Loan is one kind of Direct Loan).
- Have an income-contingent repayment plan (that just means your monthly payment is based on your income). PSLF is itself a form of ICR, and we’ll talk about the other, longer ICR road to forgiveness next.
- The only silver lining here is that unlike other forms of Income-Driven Repayment toward loan forgiveness, PSLF is not treated as a taxable event by the IRS. If they say they’re forgiving your balance, there won’t be a tax bill thrown in.1
Now if you can jump through all those hoops and keep the dance going for 10 years straight without a misstep, the Department of Education has promised they’ll forgive your balance. Sounds exhausting!
How Often Do PSLF Borrowers Actually Get Forgiveness?
But before you sign right up, let’s look at what the stats tell us about how often PSLF actually pays off.
Remember we told you that student loan forgiveness almost never pans out? According to a November 2020 Federal Student Aid report on applications throughout the lifetime of the program, a total of 227,382 people have submitted 296,340 applications for their loans to be forgiven through public service.2 From all those 296,340 applications, only 6,493 were approved.
Even worse? That only represents a total of 3,776 unique borrowers who have ever been granted student loan forgiveness. That’s only 1.7%!
It basically never happens.
Hundreds of thousands of borrowers have entered PSLF and taken on low-paying jobs—and face it, that’s what government and nonprofit work often is—only to have their hopes of loan forgiveness dashed years later. That’s not only deeply frustrating for the applicants, it’s possible that they could have become debt-free far sooner by either taking higher paying jobs, working the debt snowball method, or both!
Still not convinced you should avoid the PSLF boondoggle? Think about this. Would you believe that some of the rare, lucky recipients of forgiveness have had that prize withdrawn years after the fact? Yes, it’s true. In 2017, some people who believed their loan balances were forgiven, later received letters of denial—sometimes years later.3 Just stay away.
In addition to PSLF, there’s another scheme—err, plan—you can pursue toward forgiveness of a Parent PLUS Loan. But if you think it’s gonna be better, prepare to be shocked.
There’s a group of repayment options for student loan borrowers known as Income-Driven Repayment (IDR). Within those programs, the only type Parent PLUS Loan borrowers can use is called Income-Contingent Repayment (ICR).
But forget about the alphabet soup for a minute and stew on this: In March 2021, the National Consumer Law Center reported that out of about 2 million borrowers in an IDR who managed to make payments for 20 years or more, only 32 applicants have ever had their loan balances forgiven.4
It’s yet another example of a government program with a lot of hype, but far too little delivery.
The ICR route to forgiveness is similar to the PSLF, except that it’s not limited to government or nonprofit work and it requires you to make payments for far longer than 10 years.
Here are the facts:
- You must start out by consolidating your Parent PLUS Loan with any other student loans you have as the parent into a Direct Consolidation Loan. (Parent PLUS Loans can never be consolidated with the federal loans your child holds in their name, because the Department of Education always views them as their own individual person with separate loan obligations.)
- The income-contingent portion of the program is strict. You must not only certify that your income is low enough to qualify, you also have to prove it again annually to remain in the program. And if you get a raise along the way? Congratulations, but you can kiss your future loan forgiveness goodbye.
- Once you’ve consolidated your Parent PLUS Loan with other student loans of yours, your payment amount will be lower.
- It will either be 20% of your discretionary income, or the defined payment for a 12-year term, whichever is lower.
- Now that you’ve arranged a tidy lower payment, you’ll just need to make—checks notes—25 years of on-time payments to have any remaining balance forgiven.5
Twenty-five years? Do the math and ask yourself how old you’ll be on the other side of that bargain. Imagine carrying student loan debt into retirement! This setup begins to make the PSLF scheme look like a very sweet deal. (It’s not, but still . . . )
One last government gotcha—if you ever do manage to extract that precious forgiveness from the Department of Education, you should know it’s a tax event. Because the IRS demands a sizable cut of the forgiveness, some have even called it a tax bomb because of the way it blows up your bank account.
Will President Biden Forgive Parent PLUS Loans?
So much for the low, slow payoff methods toward forgiveness of Parent PLUS Loans. How about a more unconditional form of forgiveness being hinted at by President Biden and other government leaders?
There’s been a lot of talk recently from lawmakers and consumer advocate groups pushing to have federal student loans forgiven—including Parent PLUS Loans. But the legal details of how that would work are far from clear. And even President Biden himself hasn’t stated for sure how he wants to address the issue.
Here’s what we know right now about forgiveness proposals, including how they’d affect Parent PLUS borrowers:
- Democratic leaders in the House and Senate in February reintroduced a resolution calling on President Biden to use an executive order to forgive $50,000 in student loan debt for every borrower.
- Also in February, the White House said the administration is open to the idea of forgiveness and is looking into whether an executive action could work legally.
- There’s been a lot of debate about whether the forgiveness should apply for all borrowers, or whether it should be limited only to borrowers who fall below a defined maximum income.
- The Biden administration has said Parent PLUS Loan borrowers might be included in a possible forgiveness order.
- On the other hand, in his presidential campaign, Biden’s talk about loan forgiveness was focused primarily on helping undergraduates.6
What does it all mean for you? We’ll give you the same advice we always give on the topic of waiting on the government to fix your finances: Don’t even go there.
Maybe having all, or part, of your federal student loans forgiven is in your future. And if that happens, that will be great for you!
But given the government’s track record with making and breaking promises, trusting these people to solve your problems is not the smartest money plan.
Alternatives to Parent PLUS Loan Forgiveness
No matter the packaging for the scheme, these forgiveness come-ons rarely pay off for borrowers. A much better plan is to get intentional with your money and focus on becoming debt-free as fast as possible.
How? Here are some steps.
- Avoid debt. Sounds simple, right? But many people keep taking out new loans even as they are resolving to pay off another. That’s self-defeating and will only end in worse trouble. Get mad at the debt and get out of it!
- Begin to budget. Your income is your most powerful tool for making big, positive financial changes. And the only way to leverage it is with a monthly plan. When you’re in the habit of giving every dollar of income a job to do, cash has a way of flowing where it belongs. One result is you’ll find extra money you can send toward debt as you work your way out.
- Work the debt snowball. We mentioned it before, and it’s a near miraculous way to eliminate debt. Just list your debts smallest to largest. Then pay minimum payments on everything but the little one. Now attack the little one with a vengeance. Whether your Parent PLUS Loan becomes your immediate focus or falls later in the snowball, it’s going to be gone in no time if you work this plan.
- Consider refinancing. Refinancing your student loans can be a great option, depending on your situation. And it can even help with Parent PLUS Loans! There are some details to keep in mind: never pay a fee to refi, only get a fixed rate, look for a net interest rate lower than your current net rate, never agree to a longer repayment period, and never use a refi as an excuse to lose your focus on getting debt-free as soon as possible.
Those steps are way more practical, and far more likely to help than waiting on a faraway hope of forgiveness. Focus on paying your debt off quickly, and you’ll leave your Parent PLUS Loan behind in no time.