How Can I Get My Parent PLUS Loans Forgiven?

Getting stuck by your Parent PLUS Loan? You’re probably searching for the most straightforward route out, including having your entire debt erased. Is Parent PLUS Loan forgiveness, however, genuine? And what are your choices for finally getting rid of this thing? Let’s have a look.

Is Forgiveness of Parent PLUS Loans a Real Thing?

So you did it: you chose to sign up for a Parent PLUS Loan after your child didn’t receive enough financial aid for undergrad college. You’re now thinking if forgiveness is a possibility.

Yes, there are a few options for getting your Parent PLUS Loan forgiven, but they have many limitations and restrictions. So, to summarize, forgiveness does occur, but it is both rare and difficult to achieve.

One item that currently does not exist is having a Parent PLUS Loan canceled overnight. The current student debt forgiveness options require you to make numerous payments before becoming eligible to ask for forgiveness. (However, there is chatter in Washington about making some blanket cancellation for federal student loans—though the details are sketchy at best.) (See below for more information on how it may affect Parent PLUS borrowers.)

Even after making the appropriate amount of payments, many borrowers find that the forgiveness they’ve been looking forward to for years is denied—often for technical reasons they weren’t aware could derail their plan. The fact of Parent Plus forgiveness is that it’s a crapshoot: you might hear of someone winning now and then, but it’s rare. It would be absurd to base your financial plans on it.

Forgiveness of Public Service Loans

The first option for getting a Parent PLUS Loan forgiven is through Public Service Loan Forgiveness (PSLF). The most fantastic thing about PSLF as a strategy is that the 10-year time commitment is far less than the 25 years required for the income-contingent forgiveness described further down.

But it’s still ten years of your life! And there are strict guidelines to follow to remain eligible for PSLF! Like what, exactly?

Loan Forgiveness in the Public Sector

• You must complete the following during your years of service to receive the potential forgiveness of your loan balance:
• Work for a federally qualified employer, such as a government or nonprofit organization.
• Working full time (defined as 30 hours per week) and maintaining full-time hours during your PSLF years is required.
• Make on-time payments for the past ten years and prove it. That’s 120 consecutive payments without missing a beat. That doesn’t appear to be very… forgiving.
• Do you have a Direct Loan? (and yes, a Parent PLUS Loan is one kind of Direct Loan).
• Have an income-dependent repayment plan (your monthly payment is based on your income). PSLF is a type of ICR in and of itself, and we’ll discuss the second, longer ICR path to forgiveness next.
• UNLIKE OTHER FORMS OF INCOME-DRIVEN REPAYMENT, the IRS does not recognize PSLF as a taxable event. If they declare they will forgive your balance, there will be no tax bill. 1
• The Department of Education has offered to forgive your balance if you can leap through all those hoops and keep the dance going for ten years without missing a beat.

How Regularly Do PSLF Borrowers Receive Forgiveness?

But, before you sign up, take a look at the statistics to see how frequently PSLF pays off.

Remember that student loan forgiveness is virtually never a good idea? A total of 227,382 persons have submitted 296,340 applications for their debts to be forgiven through public service, according to a November 2020 Federal Student Aid report on applications throughout the program’s lifespan.

What’s worse? There have only ever been 3,776 distinct borrowers who have received student loan forgiveness. That’s barely 1.7 percent of the total! It rarely occurs.

Hundreds of thousands of borrowers have enrolled in PSLF and selected low-paying jobs—which is typically the case in government and nonprofit work—only to have their debt forgiveness aspirations shattered years later. This is infuriating for the applicants, but it’s also feasible that they could have become debt-free far sooner if they had taken higher-paying jobs, using the debt snowball approach, or both!

Still not persuaded that the PSLF is a waste of time? Consider the following scenario. Would you believe that some of the few fortunate recipients of forgiveness have had their reward revoked years later? Yes, it is correct. Some consumers who thought their loan balances were forgiven in 2017 got refusal letters months or years later. Stay away.

Income-Related Repayment

Aside from PSLF, there’s another scheme—err, plan—you can use to get a Parent PLUS Loan erased.

Income-Driven Repayment is a series of repayment options for student loan holders (IDR). Parent PLUS Loan borrowers can only use the Income-Contingent Repayment option (ICR).

But put the alphabet soup aside for a moment and consider this: Only 32 applicants have ever had their loan sums erased, according to the National Consumer Law Center, out of nearly 2 million borrowers in an IDR. The latter have made payments for 20 years or more.

It’s just another example of a government program that generates a lot of buzzes but delivers far too little.

The following are the facts:

• First, combine your Parent PLUS Loan and any other student debts you have into a Direct Consolidation Loan. (Parent PLUS Loans cannot be consolidated with federal loans held in your child’s name since the Department of Education treats them as a separate person with separate loan obligations.)
• The program’s income-contingent portion is rather stringent. To stay in the program, you must certify that your income is low enough to qualify, but you must also prove it annually. And what if you earn a raise in the meantime? Congratulations, but you can say goodbye to loan forgiveness in the future.
• Your monthly amount will be lower once you’ve consolidated your Parent PLUS Loan with other student loans.
• It will be 20 percent of your discretionary income or the 12-year specified payment, whichever is lower.
• You’ll need to make—checks notes—25 years of on-time payments to have any residual balance erased now that you’ve negotiated a lower price.

A quarter-century? Do the arithmetic and calculate how old you’ll be on the other side of the deal. Imagine having to pay off your student loans in retirement! The PSLF scheme appears to be a pretty good deal with this setup. (Well, it isn’t, but…)

One last government tidbit: if you ever get that valuable forgiveness from the Department of Education, you should be aware that it will be a tax event. Some have dubbed it a tax bomb because it blows up your bank account. After all, the IRS demands a substantial part of the forgiveness.

Will Biden Forgive Parent PLUS Loans?

So much for the low-payoff, slow-payoff strategies for Parent PLUS Loan forgiveness. As President Biden and other government officials have suggested, what about more unconditional forgiveness?

Recently, lawmakers and consumer advocacy groups have been advocating for the forgiveness of federal student loans, including Parent PLUS Loans. However, the legal ramifications of such an arrangement are unclear. Even Vice President Joe Biden hasn’t said how he plans to deal with the problem.

Here’s what we know about forgiveness plans right now, including how they would affect Parent PLUS borrowers:

• In February, Democratic House and Senate leaders submitted a resolution urging President Biden to use an executive order to eliminate $50,000 in student loan debt for all borrowers.
• The White House also stated in February that the administration is open to forgiveness and is investigating whether an executive action would be legal.
• There has been a lot of discussion regarding whether forgiveness should be available to all debtors or exclusively to those who earn less than a certain amount.
• On the other hand, Biden concentrated his loan forgiveness discussion throughout his presidential campaign on helping students.

What does all of this mean to you? We’ll give you the same advice we always deliver when waiting for the government to cure your finances: don’t bother.

Your federal student debts are perhaps forgiven entirely or partially in the future. And if it occurs, it will be fantastic for you!

However, given the government’s track record of making and breaking promises, putting your faith in fixing your problems is not the best financial strategy.

Parent PLUS Loan Forgiveness Alternatives

Regardless of how the strategy is packaged, these forgiveness bonuses rarely pay off borrowers. Getting purposeful with your money and becoming debt-free as quickly as possible is a far better option.

How? Here are some guidelines.

Avoid accumulating debt. Isn’t it straightforward? However, many people continue to take out new loans while attempting to repay one. That’s counterproductive and will lead to further problems. Become enraged by your debt and resolve to eliminate it!

Start planning your budget. Your income is the most effective instrument for achieving significant, positive financial changes. And the only way to take advantage of it is to sign up for a monthly plan. When you make it a habit to give every dollar of revenue a purpose, money will flow. As a result, you’ll have more money to put toward your debt as you work your way out.

Work the debt avalanche. We’ve already covered it, and it’s a near-miracle approach to getting out of debt. Order your obligations from least to highest. Then make minimum payments on all but the smallest. Attack the small one with a vengeance now.

Whether you focus on your Parent PLUS Loan right away or later in the snowball, you’ll have it paid off if you stick to this schedule.

Think about refinancing. Refinancing your student loans may be a good alternative, depending on your circumstances. It can also assist with Parent PLUS Loans. There are a few things to remember: never pay a fee to refi; only get a fixed rate; look for a net interest rate that is lower than your current net interest rate; never agree to a more extended repayment period, and never use a refi as an excuse to lose sight of your goal of becoming debt-free as soon as possible.

Those steps are considerably more practical and likely to assist than hoping for forgiveness in the future. Concentrate on paying off your loan promptly, and you’ll be free of your Parent PLUS Loan in no time.