Are direct parent plus loans eligible for loan forgiveness

Biden announced Wednesday that his administration is moving to forgive $20,000 in student loan debt for Pell Grant recipients, and $10,000 for all other federal borrowers earning under $125,000 annually ($250,000 for households). More details will be released in the coming months, but most borrowers will need to apply for forgiveness and verify their income.

Though forgiveness talks have been in the works for months, it was unclear exactly who would qualify. Many advocates worried only students with federal loans would be eligible, leaving behind millions of parents and grandparents—many of whom are low-income and people of color—who took on debt so their kids or grandkids could go to college.

But parental PLUS loans—as well as graduate loans—do qualify for forgiveness. That will help the estimated 3.7 million families who owe at least $104 billion.

Collectively, a parent and his or her child could be eligible for at least $30,000 in relief, says Peter Granville, senior policy associate at the Century Foundation, because forgiveness is on a per borrower basis, not a per student basis. That’s $20,000 for the child if they are a Pell Grant recipient, and $10,000 for the parent. That’s significant, given that half of PLUS families also receive Pell Grants, according to Granville.

It’s not immediately clear if parent loans will also be eligible for Pell Grant forgiveness. It is also not clear if divorced parents or parents who were not married would be eligible for additional relief.

Overall, Granville is happy the administration decided to “go big” and include parent PLUS loans in its relief efforts.

“It’s genuinely a beautiful thing, in my opinion,” Granville says.

Parent PLUS loans were designed to help middle-income families pay for college. But over the years, they’ve become a tool for many low-income and low-asset families as well. The loans are saddled with higher interest rates than other federal student loans, and there is a much higher limit on how much parents can take out, often leading to a debt spiral for families, according to a report from the Century Foundation authored by Granville.

Granville would like to see Congress address some of the other concerns about the affordability of these loans; Congress sets interest rates on student loans, for example. A bill called the Parent PLUS Loan Improvement Act, last introduced in 2019 by Marcia Fudge, now secretary of the U.S. Department of Housing and Urban Development, would reduce the interest rate and “make repayment easier for parents in the future.”

But for now, Granville says the relief is worth celebrating. Just make sure your parents know it’s coming, and that they will have to apply for the forgiveness when it’s made available.

“I would encourage anyone out there who knows their parents took out parent PLUS loans to make sure they know this news,” Granville says.

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If you borrowed money in the form of a Parent PLUS Loan to finance your child’s college education, then you may be wondering if the loan is eligible for forgiveness.  Good news: The answer is yes. Depending on your income and line of work, you have a couple of different options available to you.

Option #1: Income-Contingent Repayment Plan

Income-Contingent Repayment (ICR) Plans feature flexible repayment options, based on your income and family size, in addition to loan forgiveness after 25 years.  If you have consolidated multiple Parent PLUS Loans under the Direct Consolidation Loan Program, then you may be eligible to enroll in an ICR Plan.  Under ICR Plans, your monthly loan payment is limited to not more than 20 percent of your discretionary income, or the amount that you would be required pay on a fixed 12-year repayment schedule, whichever is less.  However, increases in your annual income can potentially result in higher monthly payments than would be required under a Standard Repayment Plan.  In addition, you are obligated to certify your income and family size on an annual basis, otherwise your required monthly loan payment will automatically revert to the amount due under the Standard Repayment Plan (although, formally speaking, you would still be enrolled in the ICR Plan). ICR Plans offer loan forgiveness for any balance remaining after 25 years; however, you will be required to pay income tax on the forgiven amount in the year that the balance is forgiven. You could be facing a hefty tax bill in the year that you receive forgiveness, so it is important to plan accordingly.

Option #2: Public Service Loan Forgiveness Program

If you work full-time for the federal government or a qualifying nonprofit organization, then you may qualify for student loan forgiveness under the Public Service Loan Forgiveness Program.  This program forgives outstanding loan balances for qualifying borrowers who make 120 qualifying monthly payments, which generally means that loan balances remaining after after 10 years are forgiven.  Borrowers must be enrolled in an income-based repayment program, such as the ICR Plan described above (Note: The ICR Plan is the only income-based repayment plan for which parent borrowers qualify.)  Borrowers enrolled in the Public Service Loan Forgiveness Program are not required to pay any income tax on forgiven amounts.

Utilize the Repayment Estimator Tool

If you are enrolled in one of these programs, you may be wondering how much of your debt will be forgiven.  The Federal Student Aid Office of the U.S. Department of Education provides this handy Repayment Estimator tool to compute loan payments and forgiveness under different repayment programs.  Borrowers can utilize this tool to explore all the repayment options available to them.

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