Loophole can be useful to Parent PLUS holders
Parents who took federal loans to pay for their kid’s college education can use a loophole to cut their monthly repayments.
When President Joe Biden announced plans to provide relief to the more than 40 million Americans with federal student loans, parents who took out Parent PLUS Loans were excluded from the most lucrative incomedriven repayment plans. They’re only eligible for the Income-Contingent Repayment plan, which has higher monthly payments than the other plans.
The only way parents can access one of the money-saving IDR plans is through a loophole, but they must act fast. The loophole is slated to close July 1, 2025.
The ICR plan is always available for Parent PLUS Loan holders:
Payments under the ICR plan are always based on your income and family size. It’s the lesser of:
● Twenty percent of your discretionary income.
● Fixed payments over 12 years, adjusted according to your income. In some cases, your payment can be higher than the amount you would have to pay under the 10-year Standard Repayment Plan, the Department of Education warns.
● Repayment length: 25 years.
● Parent PLUS loans must be consolidated into a direct loan to be eligible.
All other plans produce lower monthly payments because they are based on a lower percentage of your income and usually have lower interest rates. Payments are capped at between 10% and 20% of your discretionary income.
Under the new SAVE plan, for example, more of your income is also protected from student loan payments and the payment cap will be cut in July to 5% for undergraduate loans.
Say you earn $50,000 annually and have $100,000 of Parent PLUS loans. The ICR monthly payment would be $590, while the SAVE plan would be only $143, according to Student Loan Planner, which helps people manage student debt.
Some plans also have shorter repayment periods, and remaining loan balances are forgiven after 20 or 25 years of payments. If you’re eligible for Public Service Loan Forgiveness, you can get your remaining debt forgiven after just 10 years in an income-driven plan.
The new SAVE plan also has an interest benefit. If you make your monthly payment, your loan balance won’t grow due to unpaid interest that accrued since your last payment.
Parent PLUS Loan holders can get a better repayment plan, but it’s timeconsuming, complicated and requires a careful double consolidation of loans by July 1, 2025, to access the most lucrative SAVE plan.
If you’re just starting the consolidation process now, it’s unlikely you’ll finish by April 30, but that shouldn’t deter you. “You’ll still get credit, just not the full credit,” MacPhetres said. “They’ll do a weighted average.”
There are 3.8 million Parent PLUS borrowers owing more than $112 billion, accounting for 13% of the total outstanding federal student loan debt, according to Sen. Chris Van Hollen, who has called on the Biden administration to expand student debt relief to cover these borrowers.