How to Pay Off Parent PLUS Loans Quickly

Quick Facts

• Parent PLUS Loans are federal student loans that can be paid off early without penalties by making extra payments, which can save on interest and help loan borrowers become debt-free faster.

• Refinancing parent PLUS loans with a private lender can lower interest rates and speed up loan repayment. Still, it means losing access to federal benefits like student loan forgiveness and income-driven repayment plans.

• Following the standard 10-year repayment plan, making interest-only payments while in school, and sharing repayment responsibility with your child can also help pay off Parent PLUS Loans faster, reducing overall student loan debt.

• Creating a student loan repayment strategy that balances your desire to pay off loans quickly with your family’s financial situation and long-term goals is essential for successfully managing Parent PLUS Loans.

If you’re one of the many families struggling to pay off Parent PLUS Loans, you’re not alone. Fortunately, there are several strategies to help you manage these federal student loans and become debt-free faster:

1. Make extra student loan payments

2. Refinance parent PLUS loans to potentially secure a lower fixed interest rate

3. Follow the standard 10-year repayment plan

4. Make interest-only payments while your child is in school

5. Share repayment responsibility with your child

Ahead, we’ll dive into each strategy, exploring how they work and when they’re most effective. We’ll also discuss the potential drawbacks and provide tips for success.

As a student loan lawyer, I’ve learned that while paying off Parent PLUS Loans quickly can be a great goal, it’s not always the smartest move for every borrower. Many families I’ve worked with have found that focusing on affordable monthly payments and loan forgiveness options is a better path forward for their personal finance situation.

By the end of this article, you’ll understand the repayment options available and be better equipped to make informed decisions about managing your Parent PLUS Loans based on your unique financial situation.

Related: What to Know About Paying Off Your Student Loans

What it is: Making additional payments beyond your required monthly minimum to pay off your Parent PLUS Loans faster. Parent PLUS Loans do not have prepayment penalties, so you can make extra payments anytime without incurring more fees.

How it works: By allocating extra money towards your loan principal, you can reduce the overall interest you pay and shorten your repayment period. Example: If you have a $50,000 Parent PLUS Loan with a 7% interest rate and a 10-year term, paying an extra $100 per month would save you $5,467 in interest and help you pay off your loan 2 years and 2 months earlier.

When to use it: If you have extra room in your budget and want to save on interest charges over the life of your loan.

Drawbacks: Requires consistent extra payments, which may be challenging if you have a tight budget or fluctuating income. Be sure that making extra payments doesn’t compromise other financial priorities.

Tips for success:

• Cut unnecessary expenses and redirect the savings towards your loan payments.

• Increase your income through side hustles, freelance work, or taking on more shifts at your job to boost your ability to make extra payments on your education loan.

• Use windfalls, such as tax refunds or bonuses, to make larger extra payments and reduce your loan amount more quickly.

• Set up automatic payments to ensure you consistently make extra payments each month, keeping you on track with your repayment goals.

Related: Who Is Responsible for Parent PLUS Loans in a Divorce?

What it is: Taking out a new loan with a private lender to pay off your existing Parent PLUS Loans, typically at a lower interest rate. This turns your Parent PLUS Loans into a private student loan.

How it works: By securing a lower interest rate, more of your monthly parent plus loan payments go towards the loan principal, helping you pay off your debt faster. Example: If you have $60,000 in Parent PLUS Loans at 7.5% interest and 8 years left on your term, student loan refinancing to a private loan at 5% interest with a 7-year term would save you $6,227 in interest and help you pay off your loan 1 year earlier. Related: Refinance Parent PLUS Loan Lenders

When to use it: If you have a good credit score (usually 700+) and a stable income or a cosigner with both. These factors help you qualify for the most competitive interest rates.

Drawbacks:

• Loss of federal loan benefits, such as income-driven repayment plans like the SAVE and ICR Plan, parent plus loan forgiveness programs, and deferment or forbearance options.

• Potential for higher monthly payments if you choose a shorter loan term.

Tips for success:

• Shop around and compare rates and terms from multiple private lenders to find the best deal for your student loan refinance.

• Read the fine print and understand the terms of your new loan before signing.

• Consider the long-term implications of refinancing, such as losing federal loan benefits, before deciding on your parent plus loan repayment strategy.

• If you’re unsure, consult a financial advisor or student loan expert to help determine if refinancing is right for your situation.

Related: Who Claims Parent PLUS Loans on Taxes?

What it is: Repaying your Parent PLUS Loans on the default Standard Repayment Plan, which has a fixed monthly payment and a repayment term of 10 years.

How it works: By paying off your loans within the standard 10-year term, you’ll reduce the total interest paid and become debt-free faster compared to other plans with longer terms. Example: If you have a $40,000 Parent PLUS Loan at 6.5% interest, your monthly payment on the Standard Repayment Plan would be $456. Over the 10-year term, you’d pay $54,723, including $14,723 in interest charges. An Extended Repayment Plan with a 25-year term would lower your monthly payment to $273 but cost you $41,899 in total interest.

When to use it: If you can afford the higher monthly payments and want to focus on paying off your loans quickly to reduce overall interest charges.

Drawbacks:

• Higher monthly payments compared to other repayment plans, which may strain your budget.

• Less flexibility compared to income-driven repayment plans, which adjust based on your financial situation.

Tips for success:

• Make extra payments to further reduce interest charges and pay off your loans even faster.

• Set up automatic payments to ensure you consistently make on-time payments and stay on track with your repayment schedule.

• Avoid extending your repayment term, as this will result in paying more interest over the life of the loan.

• If you’re struggling with the higher monthly payments, consider other strategies like refinancing or income-driven repayment plans to make payments more manageable.

What it is: Paying only the interest that accrues on your Parent PLUS Loans while your child is still in school, rather than deferring payments until after graduation.

How it works: By making interest-only payments during the in-school period, you prevent the interest from capitalizing (being added to the loan principal) and keep your loan balance from growing. Example: If you borrow $30,000 in Parent PLUS Loans at 7% interest and defer payments for 4 years, about $8,400 in interest will accrue. If you make interest-only payments of $175 per month during those 4 years, you’ll prevent that $8,400 from being added to your loan balance, making your payments more manageable when your child graduates.

When to use it: If you can afford to make interest-only payments while your child is in school and want to reduce the overall cost of your Parent PLUS Loans.

Drawbacks:

• Requires making payments while your child is still in school, which may be challenging if you have limited cash flow.

• Interest-only payments don’t reduce your loan principal, so you must still make full payments after your child graduates.

Tips for success:

• Contact your loan servicer to set up interest-only payments and ensure you make them on time each month.

• Consider setting up automatic payments to streamline the process and avoid missed payments.

• If you can’t afford full interest-only payments, pay what you can to reduce the amount of interest that capitalizes when your child graduates.

• Communicate with your child about your efforts to reduce loan costs and involve them in the repayment process when possible.

What it is: Working with your child to repay your Parent PLUS Loans rather than taking on the full repayment responsibility yourself.

How it works: By setting clear expectations and creating a repayment plan together, you and your child can share the financial burden of repaying the loans. Example: If you have a $50,000 Parent PLUS Loan with a 10-year term and a $500 monthly payment, you might split the payment 50/50 with your child. This would make you each responsible for $250 per month, making the debt more manageable for both of you.

When to use it: If you want to foster financial responsibility in your child and ease the burden of repayment on yourself, and your child is willing and able to contribute to the loan payments.

Drawbacks:

• Requires open communication and agreement between you and your child, which can be challenging if your child resists the idea or has limited financial means.

• Sharing repayment responsibility doesn’t legally transfer the debt to your child, so you’ll still be ultimately responsible for ensuring payments are made.

Tips for success:

• Have an open and honest conversation with your child about your expectations for their contribution to loan repayment.

• To ensure everyone is on the same page, create a written agreement outlining each party’s responsibilities and non-payment consequences.

• Encourage your child to make extra payments when possible to pay off the debt faster and save on interest charges.

• Review and adjust your repayment plan regularly based on changes in your child’s income or financial situation.

Related: How to Transfer Parent PLUS Loan to Student

There are several options to pay off Parent PLUS Loans quickly. The best strategy for you will depend on your unique financial situation, including your income, budget, and long-term goals.

Here’s a quick guide to help you determine which approach may be right for you:

• If you have extra room in your budget and want to save on interest, consider making extra payments on your loans.

• If you have a good credit score and stable income, refinancing your Parent PLUS Loans could help you secure a lower interest rate and pay off your loans faster.

• If you want to reduce the total amount of interest you pay over the life of the loan, stick with the Standard Repayment Plan and make extra payments when possible.

• If you’re looking to reduce the impact of accruing interest while your child is still in school, consider making interest-only payments.

• If you want to instill a sense of financial responsibility in your child and work together towards paying off the loans, discuss sharing repayment responsibility with them.

Related: What Happens to Parent PLUS Loans When You Retire?

Paying off your Parent PLUS Loans early can be a smart financial move, as it can save you money on interest and help you become debt-free faster. For example, if you have a $50,000 loan with a 7% interest rate and a 10-year term, paying an extra $200 per month could help you pay off your loan nearly 3 years earlier and save over $7,000 in interest.

However, before you start making extra payments, it’s essential to consider your overall financial situation. Ask yourself:

• Do I have a stable income and enough cash flow to comfortably afford extra payments?

• Do I have other high-interest debt, such as credit card balances, that should be prioritized?

• Will making extra loan payments prevent me from saving for important goals, like retirement or my child’s future education?

• Am I eligible for loan forgiveness programs that could make early repayment less useful?

If you answered “yes” to the first question and “no” to the others, paying off your Parent PLUS Loans early might be a good choice. However, if you’re unsure or feel that early repayment might strain your finances, exploring other options is okay. The key is to make a decision that aligns with your unique circumstances and financial goals.

If you’re struggling to make your regular Parent PLUS Loan payments, let alone extra ones, you’re not alone. Many borrowers find themselves in this situation. The important thing to remember is that there are alternative strategies for managing your debt effectively.

Over the years, I’ve helped many PLUS Loan borrowers in this situation. For many, pursuing lower monthly payments and loan forgiveness may be the best path forward, even if it initially seems counterintuitive.

Adjusting your repayment strategy to focus on affordability allows you to free up much-needed cash flow for other essential expenses and reduce the financial stress associated with your high-interest loans. Plus, the federal government will forgive the remaining balance, including the unpaid interest, at the end of your income-driven repayment plan.

Here are key options to consider:

• Income-Driven Repayment Plans: IDR plans, such as the Income-Contingent Repayment plan and the new SAVE plan (available through the double consolidation loophole), can lower your monthly payments by basing them on your discretionary income and family size. These plans can provide relief if you’re struggling to afford your current payments, and they offer loan forgiveness after 20-25 years of qualifying payments.

• Public Service Loan Forgiveness: If you work full-time for a government organization or non-profit, you may be eligible for PSLF. This program forgives your remaining loan balance tax-free after 120 qualifying payments while working for an eligible employer.

• Deferment and Forbearance: If you’re facing a temporary financial hardship, such as unemployment or a medical emergency, deferment or forbearance can let you temporarily pause or reduce your loan payments. However, interest will continue to accrue during these periods, so using them sparingly and only when necessary is essential.

You can also simplify your repayment if you consolidate Parent PLUS Loans into a Direct Consolidation Loan. This process combines multiple loans into a single loan with one monthly payment. Consolidation can also extend your repayment term, potentially lowering your monthly payments and opening up different repayment options, such as the Graduated Repayment Plan.

These plans often work better for high earners than income-based repayment plans because your payment is based on your loan balance, interest rate, and repayment period rather than your income. Additionally, consolidation is necessary to access IDR plans and PSLF for Parent PLUS Loans.

When deciding whether to focus on paying off your Parent PLUS Loans quickly or exploring alternative loan repayment options, consider:

• Your current financial situation and ability to afford your monthly payments

• Your long-term financial goals and priorities

• Your eligibility for loan forgiveness programs, such as PSLF

• The potential long-term costs and benefits of each repayment option

Managing Parent PLUS Loans can be stressful, but you’re not alone. Whether you’re considering paying off your loans quickly or exploring loan forgiveness, find a personalized solution that aligns with your financial goals.

My team and I are here to help you navigate your options and create a tailored plan. Book a 1:1 call with us today for a low-pressure opportunity to gain clarity and take control of your Parent PLUS Loans. Together, we’ll work towards a brighter financial future.

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