Can’t Pay Parent PLUS Loans? 6 Solutions to Take Control

• Income-driven repayment plans like Income-Contingent Repayment can provide relief for low-income borrowers, but you must first consolidate your Parent PLUS Loans into a Direct Consolidation Loan.

• Refinancing your Parent PLUS Loan with a private lender can lower your monthly payments, but it comes with the risk of losing federal student aid protections like income-driven repayment and forgiveness options.

• Defaulting on a Parent PLUS Loan can lead to serious consequences, including wage garnishment, credit score damage, and the loss of federal benefits. But you can recover through loan rehabilitation or consolidation with the U.S. Department of Education.

If you’re struggling to make payments on your federal student loans, particularly Parent PLUS Loans, you’re not alone. Many parents face this challenge due to high student loan payments or unexpected financial difficulties. But don’t worry—there are several strategies you can use to manage or reduce your payments and avoid default, wage garnishment, and other serious financial consequences.

If you’re wondering what to do if you can’t pay your Parent PLUS Loan, this guide covers six options to help you take control of your payments.

Some solutions will offer short-term relief, while others can provide more permanent help with your Parent PLUS Loan payments.

Whether your income is low or high, or whether you’re facing a temporary or long-term financial struggle, there’s a strategy here to help you.

If you have low income and can’t pay your Parent PLUS Loans, an Income-Contingent Repayment plan (ICR) could provide the relief you need. This income-driven payment plan caps your monthly payment at 20% of your discretionary income or the amount you’d pay under a 12-year fixed plan—whichever is less. Your repayment term will also extend to 25 years, and any remaining balance at the end of that period will be forgiven.

How to Qualify: To determine your eligibility for ICR, you first need to consolidate your Parent PLUS Loans into a Direct Consolidation Loan. Once consolidated, you can apply for ICR through StudentAid.gov.

For example, if your discretionary income is $30,000 per year, your monthly payment would be capped at around $500.

Advanced Option: If even this lower payment is still too high, consider using the double consolidation loophole to become eligible for other IDR plans with more favorable terms. This strategy can be complicated, so it’s best for borrowers who have explored all other options.

If you’re a high-income earner but still can’t manage your Parent PLUS Loans, the Graduated or Extended Repayment Plans might provide the relief you need. These plans stretch your repayment period from the standard repayment plan of 10 years to up to 30 years, lowering your monthly payments.

Graduated Repayment Plan: Payments start low and gradually increase every two years, which can be helpful if you expect your income to rise over time. While this plan may increase the total amount of interest you pay, it offers more short-term flexibility.

Extended Repayment Plan: If you owe more than $30,000, this plan allows you to extend your loan term up to 25 or 30 years, depending on your loan servicer. While you’ll pay more in interest over the life of the loan, it significantly reduces your monthly payments.

Why This Over ICR? While income-driven plans like ICR offer lower payments based on your income, they may still result in high monthly payments for higher earners. Graduated and Extended Plans offer more immediate relief if you need to lower your payments right away.

Example: One of my clients, a parent borrower, owes nearly $1 million in Parent PLUS Loans and earns about $500,000 annually. Under the ICR Plan, his payment would be over $8,000 a month, which is unsustainable given his other expenses like a mortgage and medical bills. By switching to a Graduated Repayment Plan, his payments started low and will increase over time as his financial situation improves.

Temporary Solution: These plans aren’t permanent solutions but can help until your financial situation changes. You can always switch to a different plan if your circumstances improve.

For my client with a $1 million in Parent PLUS Loans, our plan is to switch to an IDR Plan once he retires and his taxable income drops.

Related: Parent PLUS Loan Repayment Options

Refinancing your Parent PLUS Loan with a private lender could help lower your monthly payments, but it’s not without risks.

By refinancing, you turn your federal loan into a private student loan, which means losing federal protections like income-driven repayment plans, deferment, forbearance, and loan forgiveness programs like Public Service Loan Forgiveness (PSLF).

To qualify for refinancing with a private lender, you typically need good credit to secure better interest rates. Your new terms will also depend on factors like your loan amount.

If refinancing sounds like an option for you, we’ve broken down everything you need to know in our comprehensive guide to refinancing Parent PLUS loans.

In terms of personal finance, if you own a home and have built up equity, using it to pay off your Parent PLUS Loans could be an option. Many private lenders offer Home Equity Lines of Credit (HELOCs) or cash-out refinancing options, which allow homeowners to tap into their home’s value to pay off debts, including student loan debt.

How It Works: With a HELOC, you borrow against the value of your home, giving you access to cash that can be used to pay off your student loan debt. Cash-out refinancing increases the balance of your mortgage, letting you take out the difference in cash. Both options allow you to consolidate your debt under a lower interest rate.

Pros:

• Lower interest rates: HELOCs often offer lower interest rates than student loans, which can save you money over time.

• Tax benefits: In some cases, the interest paid on a HELOC is tax-deductible, which could reduce your overall tax liability.

• Flexible repayment options: HELOCs allow you to borrow only what you need and make flexible payments over time.

Risks: While a HELOC or cash-out refinancing may lower your interest rate, it also comes with risks. Since these options are secured by your home, failing to make payments could put your property at risk.

Additionally, converting unsecured debt like parent loans into secured debt means you could face foreclosure if you’re unable to repay. Make sure your credit report is in good standing before pursuing these options.

When It Makes Sense: Using home equity to pay off your student loan debt makes sense if you have a stable income, a solid financial plan, and are confident in your ability to make the larger mortgage payments. But this option should only be considered if you’re confident in managing the risks.

If you’re struggling to pay your Parent PLUS Loans but your child is in a better financial position, transferring the responsibility to them might be an option.

While your child cannot directly take over the Direct PLUS Loan, they can refinance the loan into their own name with a private lender, provided they qualify.

How It Works: To transfer the loan to your child, they would need to qualify for student loan refinancing with a private lender. Once approved, the loan will be in their name, and you’ll no longer be responsible for repayment.

But this means the loan becomes a private loan, and they will lose any federal protections tied to the original loan, such as income-driven repayment plans and forgiveness options.

While this can offer relief, both you and your child should carefully weigh the risks, especially the loss of federal protections.

For more detailed guidance, check out our related articles:

• • How Students Can Pay Parent PLUS Loans

  • Can You Transfer or Refinance a Parent PLUS Loan to a Student?

 

If you’re struggling to make your Parent PLUS Loan payments, you can explore temporary relief options like deferment or forbearance. Both of these provide short-term solutions but can lead to a higher loan balance as interest continues to grow.

Deferment lets you pause payments, usually while your child is in school or if you’re experiencing certain financial hardships. Interest will continue to accrue, increasing your balance once the deferment period ends.

Forbearance allows you to pause or reduce payments for up to 12 months, typically without requiring specific hardship qualifications. But interest will always build during this time, which can add significantly to the amount you owe.

While these options offer immediate relief, they can increase your overall loan balance in the long run.

For more details on the benefits and risks, explore our dedicated articles:

• How to Defer Parent PLUS Loans

• Understanding Parent PLUS Loan Forbearance

Defaulting on a Parent PLUS Loan can have serious financial consequences for student loan borrowers. Here’s what happens if you haven’t made a payment in more than 270 days:

Immediate Consequences:

• Credit Score Impact: Your default will be reported to credit bureaus, which can significantly lower your credit score.

• Wage Garnishment: The government can garnish your wages, meaning a portion of your paycheck may be automatically taken to repay the loan.

• Tax Refund Seizure: Your tax refunds may be seized and applied toward your defaulted loan.

• Loss of Federal Benefits: You’ll lose access to options like deferment, forbearance, and income-driven repayment plans, which are only available for loans in good standing under federal student aid programs.

Long-Term Consequences:

• Increased Loan Balance: Interest and fees will continue to accumulate, increasing the total amount you owe.

• Potential Legal Action: The federal government may take legal action to recover the debt, leading to further financial penalties.

How to Recover From Default

Even if you default, you still have options to get back on track:

• Loan Rehabilitation: By making nine on-time monthly payments, you can remove the default from your record and restore your loan to good standing.

• Loan Consolidation: You can also consolidate your defaulted loan into a new Direct Consolidation Loan through the U.S. Department of Education, which will bring your loan out of default and allow you to enter a new repayment plan.

Struggling to repay your Parent PLUS Loans can feel overwhelming, but you don’t have to navigate it alone. Whether you’re considering income-driven repayment, refinancing, or exploring deferment options, there’s a strategy that can fit your situation.

If you’re unsure which path is right for you, our team of student loan experts is here to help. We’ve guided countless parents through the complexities of student loan repayment, offering personalized advice tailored to your financial needs.

Book a consultation to discuss your options and find the best way forward for you and your family.