Is there any loan forgiveness or help for a large Federal parent student loan?

Question

If a parent has a federal student loan for her child's education of over 100 thousand dollars, and she is having trouble paying off, is there any sort of forgiveness, or help?

Answer 1

With a Parent PLUS loan, by default you are on the Standard Repayment Plan, which pays off the loan in 10 years. If the payments are too difficult to make, there is another option called Income-Contingent Repayment (ICR). (Note that Parent loans are not eligible for other income-driven repayment plans, such as IBR or PAYE.)

With ICR, your monthly payment is capped at 20% of your discretionary income. And after you make payments for 25 years, the balance of the loan is forgiven. (The amount that is forgiven is counted as taxable income, which means you could owe a hefty tax bill that last year if you have a large amount forgiven.)

If you (not your child) happen to be employed as a public servant (meaning that you work full-time for a government entity or a non-profit organization), you may be eligible for the Public Service Loan Forgiveness (PSLF) program. Under this program, you pay the same ICR payment as above, but the loan is forgiven after you make 120 payments (10 years), and the amount forgiven is not taxable.

Please keep in mind that these income-driven plans are not right for everyone. By lowering your monthly payment, you are increasing the amount of interest that you will be paying. Ask yourself if you are truly in need of lower payments, or if you can manage the higher payments by cutting your expenses in other areas and can get this loan out of your life sooner rather than later.

Switching to the ICR can make sense, however, if your loan balance is sufficiently large and your income is sufficiently low. In order to make your Parent PLUS loan eligible for the ICR plan, it needs to be first consolidated into a Direct Consolidation Loan. After that is done, you can switch to the ICR plan, and if you are eligible, apply for the PSLF. (Note: Entering either of these programs is not automatic; you need to apply.)

There are complicated rules and procedures for all of this, so if you think you are eligible and you would benefit from these programs, contact your loan servicer to find out what you need to do. If you have any more specific questions, feel free to ask a new question on this site.

More reading:

• Student Loan Hero: Parent PLUS Loan Forgiveness Is Possible: Here’s How to Get It
• Heather Jarvis: Parents Beware of PLUS Sized Student Loans
• Nolo: What's the Difference Between Income Contingent Repayment Plans and Income Based Repayment Plans?
• studentaid.ed.gov: Income-Driven Plans
• studentaid.ed.gov: Public Service Loan Forgiveness

Answer 2

It depends on the specifics of the loan, but generally, student loan debt is not forgivable for many, many years. According to this article, forgiveness is only available for parent PLUS loans after 25 years of continuous repayment.

Hopefully the degree you spend $100,000 on will allow your child to make enough money to help out (after all, the money was spent on her education, so there is some moral obligation to help).

She could also look into public service forgiveness programs, where you work in an underserved area in order to obtain loan forgiveness after 10 years. Usually you're better off just working in the "normal" market and getting more pay, but with that amount of debt it may be worth it.

After that, there may be income-based repayment programs for your loan, but all that does is lower the payment enough to fit within your budget - meaning you will pay more interest over the life of the loan.

You could also reduce spending or living expenses in order to throw more money at the loans.

Anther, more drastic options would be to sell assets (car? house?) to pay off the loan.

The absolute last resorts (to avoid bankruptcy) would be to cash in retirement funds. That will cost you your marginal tax rate plus a 10% penalty assuming you're not yet at retirement age.

These are just some of the reasons I encourage people to avoid student loans like the plague - they are VERY easy to rack up and VERY difficult to get rid of.