As a parent, you may be eager to help your child pursue their college education. Taking out a federal Parent PLUS loan is one way to ensure their college costs are covered. These loans can be taken out for the total cost of your child’s tuition, minus any additional financial aid they receive.
While PLUS loans have many benefits, they can also be challenging to pay back. That’s because they have higher interest rates and potentially larger loan amounts than other types of federal student loans.
If you’re wondering how to pay back your PLUS loans, you’re in the right place. Below, we’ll explain your repayment, deferment, and loan forgiveness options. We’ll also offer some tips and best practices for paying off PLUS loans as fast as possible.
When Do PLUS Loan Payments Start?
Unlike federal loans for students, repayment for Parent PLUS loans begin immediately after you’ve received the last disbursement. If you’d rather push off your repayment period, you can ask for a deferment or forbearance while your student is still enrolled in school, or if you meet certain qualifications.
The deferment period can last until six months after your child has graduated. Just keep in mind that interest still accrues during periods of deferment. If you don’t make monthly interest payments, they’ll simply be added to your outstanding loan balance.
What Are The PLUS Loan Repayment Options?
Parent PLUS loans have three repayment options you can choose from:
- Standard – The Standard Repayment Plan gives you 10 years to pay back your PLUS loans. It uses a level amortization schedule, which means that your monthly payments will be the same each month. While this plan can help you pay off your student loans the fastest, its monthly payments are the costliest of the three. However, you’ll save money by making fewer interest payments over the lifetime of your loan.
- Graduated – The Graduated Repayment Plan is structured so that your monthly payments slowly increase over time. This allows you and your child to pay more as your income grows. Your monthly payments will shift every two years for up to 10 years (unless you consolidate your loans, in which case you’ll have up to 30 years).
- Extended – If you have over $30,000 of non-consolidated PLUS loans, you can extend your loan term up to 25 years by enrolling in the Extended Repayment Plan. Like the Standard plan, this plan’s monthly payments are the same amount each month. By spreading your balance over this extended period, you can enjoy lower monthly payments. Just keep in mind that you’ll owe more interest over the lifetime of your loan.
The right repayment plan will depend on your financial situation and priorities. If you want to pay off your loan quickly and cost-effectively, stick with the Standard Repayment Plan. If you can’t afford the monthly payments, you may want to enroll in one of the other plans instead.
Is There Any Way to Get PLUS Loan Forgiveness?
There are two programs that may make you eligible for PLUS loan forgiveness:
- Income Contingent Repayment (ICR) – You can have your PLUS loans forgiven after 25 years of making payments if you enroll in an ICR plan. Only Parent PLUS loans that entered repayment on or after July 1, 2006, are eligible. To enroll in this plan, you must consolidate your PLUS loan into a Federal Direct Consolidation Loan first. After that, your monthly payments will be 20% of your discretionary income, which is the difference between your annual income and the poverty level for your state and family size. After making ICR payments for 25 years, your remaining student loan balance will be forgiven.
- Public Student Loan Forgiveness (PSLF) – If you work full-time in a qualifying public service job, you may be eligible for PSLF. Qualifying jobs include those in city, country, state, or federal governments or 501(c)(3) tax-exempt charitable organizations. As with ICR, you’ll need to consolidate your Parent PLUS loan into a Federal Direct Consolidation Loan before you can qualify for PSLF. After that, you must make income-driven payments for 10 years (for a total of 120 payments) before having your remaining student loan balance forgiven.
What to Know About Repaying Your PLUS Loans
It’s important to take repaying any student loans seriously. If you fall behind on your payments, you may face late fees and damage your credit score.
Once a payment is 270 days late, you will enter PLUS loan default. Defaulting on your student loans can have serious consequences, including:
- Severe credit score damage
- Wage garnishment of up to 15% of your monthly paychecks
- Loss of your tax refund, Social Security benefits, or other federal payment benefits
- Lawsuits, along with their associated attorney fees and collection costs
- Ineligibility for other forms of federal aid, including PLUS loans for your other children
If you’re struggling to make your PLUS loan payments on time, reach out to your loan servicer. They can help you take steps to stay in good standing.
Tips For Paying Back PLUS Loans
Here are some tips for paying off your PLUS loans and avoiding default:
- Pay more than the minimum amount each month – The faster you can pay off your loans, the less you’ll owe in interest. Thus, if you can afford to make larger loan payments each month, it can save you a lot of money down the line.
- Don’t defer payments if you can avoid it – Delaying loan payments can be helpful if you’re on a tight budget, but it can also increase your interest costs. That’s because your PLUS loans’ interest will accrue throughout the deferment period and inflate your outstanding balance. If you must delay full payments, try making interest-only payments at the very least.
- Set up a payment plan with your child – While your name is on the loan and you are responsible for making the payments, many parents expect financial contributions from their child to help repay the loan. Discuss expectations with your child before taking out the loan, and then set up an agreement for receiving their payments.
- Refinance your PLUS loans – Refinancing with a private lender could be an opportunity to lock in a lower interest rate and save money over your repayment period. Before you refinance your loans, make sure to shop around for a lender that offers competitive rates. Credit unions often offer more affordable student loans than other types of private lenders.
Important: If you refinance federal student loans into a private student loan, you are no longer entitled to the repayment options and borrower benefits you’d get through your federal loan, like income-based repayment, unemployment deferment, loan forgiveness programs, a grace period, and debt cancellation.
Can You Transfer a PLUS Loan to Someone Else?
Unfortunately, PLUS loans can’t be transferred to anyone else, including your child. You are legally responsible for your PLUS loan until it’s paid off or forgiven. (Our refinance solution does allow the option to refinance a Parent PLUS into a new loan in the student’s name.)
Learn About Other Options for College Financing
As you can see, there are many ways to pay PLUS loans. Some will be better suited to your financial situation than others.
If you have more questions about PLUS loans, send a message or schedule a one-on-one call with our student lending experts. We’d be happy to break down your college financing options with you.
If you’re looking for refinance options for existing student loans, we can help with that too! Let us match you with a credit union that best fits your needs.