If you have a Parent PLUS loan you’re trying to pay off, chances are you hear the word “no” a lot.
Some of the key protections and perks available to student borrowers are off limits to parents who borrow for their children’s education. That includes student loan forgiveness and income-based repayment. At least, that’s the conventional wisdom...
But sometimes conventional wisdom is wrong. If you have a Parent PLUS loan, you can qualify for both income-based repayment and student loan forgiveness—if you follow these two steps. Here’s the hack.
See also: Is Public Service Loan Forgiveness All It's Cracked Up to Be? 4 Things to Know
1. Get Qualified for Income-Contingent Repayment
There are four kinds of income-driven repayment plans:
- Income-Based Repayment (IBR)
- Pay as You Earn (PAYE)
- Revised Pay as You Earn (REPAYE)
- Income-Contingent Repayment (ICR)
Parent PLUS loans don’t qualify for the first three. But they do for the last one—if you consolidate your loan through a Direct Consolidation Loan first.
Income-Contingent Repayment sets your payments at what the government considers an affordable level for you based on your finances.
Under ICR, your monthly payments are set at about 20% of your discretionary income, as determined based on your income, the size of your family, and the total amount you’ve borrowed. Your payment is readjusted annually based on this info.
After 25 years of consistent payments, your loan gets discharged. Note that the government treats the forgiven amount as taxable income, however.
2. See if you qualify for Public Service Loan Forgiveness
Yes, 25 years is a long time to wait ... but you could qualify for forgiveness sooner.
The Public Service Loan Forgiveness program (PSLF) will cancel federal student loans after 120 qualifying payments. On paper, parents who work full-time for qualifying employers (generally in the public sector or for a non-profit) can also get their loans forgiven through PSLF. But there’s a catch-22.
To qualify, you have to make your payments either through an income-driven repayment plan or pay under the Standard Repayment Plan.
The Standard Repayment Plan typically has a term of 10 years. That’s about how long it takes to get your student loans forgiven if you make 120 qualifying payments. So you’ll get your forgiveness—just as you make your last loan payment.
Sounds diabolical, right? But there’s a loophole. If you consolidate your Parent PLUS loan under a Direct Consolidation Loan, that consolidated loan becomes eligible for Income-Contingent Repayment.
Once you consolidate, you can apply for ICR and then for PSLF. If your employer qualifies, you can then start making qualifying payments to get your loan forgiven in 10 years, not 25.
That was a lot of info, right? Let's recap those steps one more time:
- Consolidate your Parent PLUS Loans into a Direct Consolidation Loan
- Apply for ICR
- Apply for PSLF
- Your loan will be forgiven after 120 qualifying payments, or about 10 years
The takeaway? You can get income-driven repayment or even have your loans forgiven if you have a Parent PLUS loan—if you consolidate under a Direct Consolidation Loan first. It’s the one simple trick that opens up those options to you.
Wanna see how your numbers add up for consolidation? Check out our student loan consolidation calculator.