Written by Kevin Payne
Student loan debt is out of control in the U.S, reaching nearly $1.75 trillion as of Q2 in 2022 [1]. While much of the focus is on college students and how they can afford to pay for school, another group that often gets overlooked is footing a good portion of that debt bill.
Millions of parents have taken on significant debt to help fund their child's college education. Much of that is through Parent PLUS loans, a federal student loan option touted as a viable option to cover college expenses. Unfortunately, these parent loans have much less favorable terms and interest rates than other federal student loans.
What started as good intentions to help provide an education for their children has turned into a several decades-long struggle to repay debt, often interfering with retirement plans and other life and financial goals. Here's a closer look at parents with student loans and tips for repaying student loan debt.
Parent Student Loan Debt Statistics
A recent report from The Century Foundation revealed some startling truths about parents carrying student loan debt for their kids. According to the report, over 3.7 million families have taken out Parent PLUS loans to the tune of $104 billion in student debt[2]. At some large for-profit schools, Parent PLUS loans account for the majority of undergraduate financial aid[3]. An Urban Institute study showed that Parent PLUS loans accounted for 14% of total federal undergraduate lending during the 2012-2013 academic year. That number rose to 23% in 2017–18. [4]
Perhaps even more revealing is how parents are struggling to repay PLUS loans. The median debt taken on by parents is roughly $29,600. Research shows that after ten years of repayment, the standard length of Parent PLUS loan repayment plans, 55% of the initial balance still remains. After 20 years, the remaining balance is still 38%. More significant is that with 20 years of repayment under their belt, many parents have spent more time paying off student loans than they spent raising their children. [5]
Another reality discovered through the report is the impact of Parent PLUS loans on low-income families, especially Black and Latino families. At the time they were surveyed, 37% of Black parent borrowers said they expected to be unable to make a partial monthly student loan payment.[6]
While millions of families have taken advantage of Parent PLUS loans to cover education expenses, it's not a decision without its drawbacks. An August 2022 U.S. News & World Report survey found that 43% of parent borrowers regret taking out parent loans. 75% of parent borrowers delayed pursuing their own financial goals to fund their children's education. Taking on significant educational debt has caused many parents to delay retirement or kept them from buying a home or switching jobs[7]. Student Loans For Parents
While college students can qualify for a few different federal student loans, grants, work-study programs, and scholarships, options for parents are more limited. As a parent, you can apply for Parent PLUS loans or turn to a private lender.
Parent PLUS Loans
Parent PLUS loans are a federal student loan available through the Department of Education. They are designed specifically for parents who want to help pay for college expenses for their children. [8]
With Parent PLUS loans, parents can borrow up to the cost of attendance minus other financial aid received by their child. Unfortunately, PLUS loans carry one of the highest interest rates among student loans. Direct PLUS loans disbursed on or after July 1, 2022, and before July 1, 2022, carry a 7.54% interest rate[9]. There's also a loan disbursement fee charged when you receive a Parent PLUS loan. The fee is deducted from the loan amount received. Currently, the government charges a 4.228% loan fee at the time of disbursement.[10]
Another distinguishing feature of PLUS loans is that they are the only federal student loans subject to a credit report. If you have an adverse credit history, you'll need to meet other additional requirements, including the use of an endorser, which is similar to a cosigner, agreeing to take on financial obligations if the borrower cannot repay the loan. [11]
Private Student Loans
Some private lenders offer student loans for parents who want to pick up the tab for their child's college education. You must meet the lender's credit requirements and other underwriting standards to qualify for a private student loan. Your credit also affects the type of interest rate available. The better your credit score and history, the lower the interest rate you're likely to receive.
Private lenders often allow borrowers to check rates before applying through a soft credit inquiry, which doesn't affect your credit score. Shopping around can help you find the best rate before choosing the best lender for your needs.
Paying Off Parent Student Loans
Parents have a few options to pay off PLUS loans. The three primary options are:
- Standard Repayment Plan: Fixed monthly payments for a 10-year period
- Graduated Repayment Plan: Lower monthly payments that increase every two years for a ten-year period
- Extended Repayment Plan: Fixed or graduated monthly payments over a 25-year period[12]
Parents do not have access to most Income-Driven Repayment plans available through the federal government. The one exception is the Income Contingent Repayment (ICR) Plan. With an ICR plan, borrowers either pay 20% of their discretionary income or what they would pay on a repayment plan with a fixed payment over the course of 12 years, based on their income (whichever is lesser)[13]. You must first consolidate your PLUS loans into a Direct Consolidation Loan to get on an ICR plan. By consolidating your loans, you can choose your repayment plan, including ICR. [14]
You can also refinance your Parent PLUS loans through a private lender if you want to try and qualify for a lower interest rate. Lenders perform credit checks to determine eligibility and set rates for loans. If you have good to excellent credit and meet other requirements, you may qualify for a lower interest rate that could potentially save you money in interest charges over the life of your loan. You could also be eligible for lower monthly payments.
Some lenders may allow you to refinance Parent PLUS loans to your child's name if you want to transfer the debt eventually. When you refinance federal student loans, they become private loans and no longer qualify for federal protections like loan deferment and forbearance.
Are Parents Eligible For Student Loan Forgiveness?
Parent PLUS loans are not eligible for student loan forgiveness. However, parents can consolidate their Parent PLUS loans into a Direct Consolidation Loan, which gives them access to Income Contingent Repayment. If you choose to consolidate your PLUS loans, you could qualify for federal student loan forgiveness programs like Public Service Loan Forgiveness (PSLF). See program requirements to determine if you may qualify for loan forgiveness.
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