Parent Plus Loan Forgiveness

Christian talk radio with Rob West

The average Parent Plus loan debt is nearly $30, 000 according to federal data. But there is help for parents who are struggling to pay off loans for their children’s education. We’ll discuss that today on MoneyWise. BALLOONING PARENT PLUS DEBT Since 2015, Parent Plus loan debt has increased by two-thirds from $62 billion to over $100 billion. It’s an often overlooked segment of the student loan bubble of $1. 6 trillion. One of the reasons parents’ have taken on more education debt in recent years is because it’s easy to do. Requirements are easier than for student loans, and there’s no limit on how much a parent can borrow. Loan advisors say this puts increased pressure on parents to borrow, rather than students. Parent Plus loans also offer fewer repayment options. BETTER OPTIONS Now, I’ve advised in the past to avoid these loans. I’m certainly not against helping your kids pay for college, but borrowing to do it is not the best way to go. Instead, a 529 education savings plan allows your contributions to build over time and withdrawals for qualified education expenses are tax-free. If borrowing is unavoidable, it makes more sense for the student to take on the debt, given he or she has more time to pay it back than parents who should be saving for retirement. Another reason to avoid Parent Plus loans is higher origination fees and interest rates. Right now, the Parent Plus interest rate is just under 6. 3%, while student-financed loans are around 3. 75%. But all of that is water under the bridge if you’ve already taken out one or more Parent Plus loans and you’re struggling to make payments. But you should know that help is available. In fact, you have five options. OPTIONS FOR EXISTING BORROWERS First, you can look into income-contingent repayment forgiveness. This help, which is based on how much you earn, is available to all federal education borrowers. Unfortunately, the program for Parent Plus borrowers is the most restrictive. It caps your repayment at 20% of your discretionary income over the course of 25 years. Still, this could be helpful if you expect your income to go down once you retire, which most people do. If you make your parents faithfully for the 25 yeas of the program, any remaining debt will be written off. Then there’s Public Service Loan Forgiveness, which we’ve talked about before for student borrowers. It’s available for parents, too, if you’re working for a local, state or federal government agency or a qualified non-profit organization. You have to make 120 on-time payments before you qualify for forgiveness. Spoiler alert: The Public Service Loan Forgiveness program is reportedly in such disarray that only a tiny fraction of those participating have had their loans forgiven so far. The Education Department says it is working hard to correct the problem. There are also forgiveness programs for you if the school your child attended closed or in some way engaged in deceptive practices. If the school closes, parents can be let off the hook for repaying Parent Plus loans. Another scenario is a parent becoming disabled. If a parent suffers a physical or mental disability that prevents them from working, they could qualify for a total and permanent disability discharge. ONE LAST OPTION And finally, you have one more option for getting out from under a Parent Plus loan: You can privately refinance the remaining debt in your child’s name. The child then becomes responsible for the debt. Again, the child has more years to pay it off than you do. Now, a couple of warnings about that last option. First, it can be difficult to find a lender who will do it. If you find one, the student will have to have a good credit history in order to qualify. I realize that none of these options is ideal, but maybe one of them can prove helpful if you’re struggling with a Parent Plus loan. And if your kids are still small, remember that an ounce of prevention is worth a pound of cure. Start a 529 education savings plan today to avoid having to borrow in the future. LISTENER QUESTIONS On today’s program, Rob also answers listener questions: ●What are the rules surrounding donated dividends? ●Should you take money from investments or even sell your home to pay off credit card debt? ●How can you minimize capital gains tax liability on the sale of a home you’re not living in? ●Does it make sense to refinance an auto loan if the interest rate is lower but it would extend the term of the loan? ●What can you do if you can’t find the end-of-life paperwork after a family member dies? RESOURCES MENTIONED ●Christian Credit Counselors