Can Parent Student Loans Be Forgiven?

Parent student loans are loans a parent takes out to help pay for school on behalf of an eligible student. The federal government offers the Parent PLUS Loan program for parents of dependent undergraduate students. Parents can also take out private student loans for their children. 

You may be eligible for parent loan forgiveness with a federal PLUS loan. Private student loan lenders may offer cancellation if you co-signed loans for your child and they pass away. Read on to learn when and how you may qualify to have parent student loans forgiven.

Current parent loan forgiveness programs 

Federal Parent PLUS Loans are designed for parents of dependent undergraduate students who need help paying for school. Parent borrowers enjoy some of the same benefits and protections as students, including:

• Low, fixed interest rates
• Forbearance and deferment options
• Income-driven repayment plans
• Loan forgiveness/discharge 

Private student loans are issued by private lenders. Lenders determine loan rates, repayment terms, and fees. Private student loans lack the most important features associated with federal student loans, including options for loan forgiveness. 

The Department of Education offers parent PLUS loan borrowers several ways to seek forgiveness, including:

• Public Service Loan Forgiveness (PSLF)
• Income-Contingent Repayment (ICR)
• School closure
• Student withdrawal
• False certification of student loan eligibility (by the school)

Here’s an overview of how each one works. 

If you’re interested in PSLF, you must first consolidate your PLUS loans into a Direct Consolidation Loan. You can apply for a consolidation loan through the StudentAid.gov website. Once you’ve done that, you can enroll in an Income-Contingent Repayment plan. 

Here’s how ICR works:

• Payments are capped at 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income. 
• Repayment lasts for 25 years.
• The remaining loan balances can be forgiven at the end of the repayment term. 

You must recertify your eligibility for ICR each year. Recertification considers your household income and family size. 

Parents may also seek forgiveness if the student they took out PLUS Loans for becomes totally and permanently disabled, or passes away. Loans are also dischargeable if the parent passes away. 

Other options for parent loan forgiveness can include employer-sponsored or state-sponsored programs. Your employer’s human resources department can explain available student loan assistance or forgiveness options.

At the state level, parent borrowers might be able to receive:

• Income tax waivers
• Student loan repayment assistance
• State income tax credits
• Rebate programs for borrowers who are buying a home

The Department of Higher Education in your state should be able to tell you what kind of loan assistance might be available. 

What about private student loans? Again, private student lenders are not obligated to follow the same rules as federal loans. A private lender could offer discharge or cancellation in the event of permanent disability or death, but they’re not required to. 

If you’re considering private student loans to help your child pay for school, it’s important to compare interest rates and terms to find the right lender. 

Eligibility for Parent PLUS loan forgiveness 

Public Service Loan Forgiveness and Income-Contingent Repayment are the two primary ways to seek parent loan forgiveness through the Department of Education. Each one has specific requirements.

To qualify for PSLF, parents must work full-time for an eligible employer in a public service job. Eligible employers include:

• U.S.-based government organizations
• Tax-exempt 501(c)(3) nonprofit organizations
• Other nonprofits that devote a majority of their full-time equivalent employees to offering qualifying public services

Full-time employment is 30 hours per week or more. Parents can also qualify if they volunteer for the Peace Corps. 

Contractors are not eligible, with some exceptions. If you work for a labor union, partisan political organization, or any for-profit organization, that won’t count as eligible employment for PSLF.

You’ll need to make 120 qualifying payments for PSLF. Payments don’t need to be consecutive. The Department of Education encourages borrowers to enroll in autopay to easily track payments toward their final count. 

Qualification for Income-Contingent Repayment is based on household size and income. The Department of Education uses federal poverty guidelines to calculate discretionary income and establish plan payments. Again, you must first consolidate your PLUS loans into a Direct Consolidation Loan to apply for ICR. 

How to apply for parent student loan forgiveness 

The Department of Education has a PSLF process parents will need to complete to apply for loan forgiveness. It’s important to ensure you understand what’s required at each stage to make sure you maintain your eligibility. 

1. Consolidate your loans. If you haven’t consolidated your loans into a Direct Consolidation Loan yet, you’ll need to do that to be eligible for PSLF. You can apply for a Direct Consolidation Loan through the Department of Education website.
2. Enroll in ICR. Once you’ve consolidated your loans, you can apply for an ICR plan. This should lower your monthly payments. Again, you’ll need to recertify your eligibility for ICR annually. 
3. Complete the required payments. You’ll need to make all 120 qualifying payments while working for an eligible employer to apply for PSLF. That means, at a minimum, it will take 10 years to become eligible for this type of loan forgiveness. Note that it could take longer if you have periods of employment with a nonqualifying employer. 
4. Fill out the PSLF form. You’ll use the PSLF form to certify your qualifying employment. You’ll need to submit this form annually or whenever you change employers and again when you complete the 120 required payments. You can submit your form using the Department of Education’s PSLF Help Tool.

Once you’ve submitted your PSLF form after making 120 payments, your loan servicer will receive your application. Your lender will notify you of whether your application is approved or denied. This part of the process can take up to 90 days, depending on your employment history and whether any follow-up information is needed. 

Here are some key things to remember when seeking PSLF:

• Don’t forget that you must consolidate your PLUS loans to be eligible. 
• While you could opt for a Standard Repayment plan, you may not have anything left to forgive. 
• Remember to submit an updated PSLF form annually or any time you change employers. 
• Use the PSLF Help Tool to make sure you’re providing the Department of Education with all the information needed to determine your eligibility. 
• Consider enrolling in autopay to ensure that you’re making complete and on-time payments to your loans. 
• If you’re in danger of falling behind on payments, reach out to your loan servicer to discuss forbearance or deferment options. 
• Note that loan amounts forgiven through PSLF are not considered to be taxable income. 

If you’re trying to get forgiveness through ICR, you’ll need to make your required payments on time each month and recertify your information each year. If you fail to recertify on time, you can stay in the plan but your payments will no longer be calculated based on your monthly income. 

By the end of 2025, amounts forgiven under an ICR plan are not considered taxable income. However, that could change if the federal government doesn’t introduce legislation to extend this benefit beyond 2025. So you may need to factor in potential tax consequences when considering ICR forgiveness. 

Alternatives to parent loan forgiveness

When exploring options for managing parent student loans, if loan forgiveness isn’t a possibility, the following are viable alternatives.

Loan consolidation

Loan consolidation is a practical alternative to parent student loan forgiveness. It simplifies debt management by combining multiple loans into a single loan with one monthly payment. Unlike forgiveness programs, which can take years and have strict eligibility criteria, consolidation is more accessible. 

However, consolidation might extend your loan term, potentially increasing the total interest paid. Forgiveness can completely eliminate debt, but consolidation focuses on simplifying repayment.

Refinance

Refinancing parent student loans can lower your interest rate, reducing your monthly payments. This aims to make your loan more affordable rather than canceling it. You can save money over time, but refinancing requires a good credit score and a stable income. 

Refinancing a federal loan converts it to a private loan, removing potential federal protections such as deferment or forbearance. In contrast, student loan forgiveness relieves the debt burden.

Income-driven repayment plans

Income-driven repayment plans adjust your payments based on your income, making them more affordable. This doesn’t eliminate debt but makes it more manageable. These plans may lead to eventual forgiveness after 20 to 25 years of consistent payments, offering long-term relief. 

However, the extended repayment period means you’ll pay more interest over time. Income-driven plans can provide immediate relief compared to the lengthy process of loan forgiveness.

The post Can Parent Student Loans Be Forgiven? appeared first on LendEDU.