Student Loan Vacation Is Ending
What Parent PLUS borrowers should know as student loan payments resume
Americans who haven't had to make student-loan payments for three years are about to see that pause come to an end. The Supreme Court struck down the Biden administration's plan to cancel $400 billion in student debt, and payments are set to resume this fall.
A growing portion of people saddled with student loan debt are parents, according to the Consumer Financial Protection Bureau's 2018 Student Loan Snapshot. The report added that some 210,000 of the 870,000 people holding student loan debt were parents who had taken out federal Parent PLUS loans. These loans, which are not subsidized, originally were intended to help affluent families send their children to private universities.
What to Watch For
If you're among the parents with such debt, here's what you need to know:
Be aware of dates. Payments are due in October, but interest started to accrue September 1. Borrowers will receive bills at least 21 days ahead of their due dates. Payment information is also available online the Federal Student Aid website or your loan servicer's site.
Check your account online. The U.S. Department of Education makes direct student loans but delegates the collection of loan payments to private companies. Three of these "servicers" — Navient, Pennsylvania Higher Education Assistance Agency (Fed Loan Servicing), and Granite State — left the business in 2021, and the loans they managed were transferred to other servicers.
"(People) should not be seeing a radically different monthly bill."
Make sure you know who your loan servicer is, and that it has the correct information about your loan and has accurately calculated your expected monthly payment. If you're unsure who services your loan, check the "Who's My Student Loan Servicer?" page on the federal student aid website.
You May Need to Restart Autopay
If you were on autopay before payments were suspended, you may need to re-enroll, said Robert Humann, chief revenue officer at personal-finance company Credible.
People "should not be seeing a radically different monthly bill," said Kyra Taylor, staff attorney at the National Consumer Law Center. "We are hearing that there are servicer errors."
Loan servicers often make mistakes, and it's up to you to catch them, said Joseph Reinke, founder and chief executive officer of FitBUX, which provides financial planning services aimed at 24- to 40-year-olds. He suggests calling the servicer, rather than messaging online, because servicers record all calls and you'll have a record in case there's an issue.
Consider your payment options. "The biggest concern borrowers have after three years of paused payments is how are they going to afford it when repayment turns back on," said Taylor.
Student borrowers have options for loan refinancing or even forgiveness, such as the popular SAVE plan. But parents who borrowed through the Department of Education's Parent PLUS loan program to pay for their childrens' education, have limited choices. "We're hearing frustrations" about that, said Meagan McGuire, senior consultant at Student Loan Planner, a consulting firm.
"Parents who don't qualify for federal forgiveness programs may still find help with their loans."
Most Parent PLUS loans are on a 10-year repayment plan. Borrowers who owe more than $30,000 can extend that over 25 years. There's also the option to make "graduated" payments, which start low and increase over time.
Parents who work for a government or nonprofit organization may qualify for the federal Public Service Loan Forgiveness program once they've made 120 payments under a qualified repayment plan. There is also an Income-Contingent Repayment Plan for those who are eligible.
"Parents who don't qualify for federal forgiveness programs may still find help with their loans," said Humann. "Many states have forgiveness options for borrowers in certain careers like health care, teaching or law. Employers are also increasingly offering student loan perks, so your job may contribute to your loan repayment up to an annual maximum."
Consider This Loophole
Parent PLUS borrowers can take advantage of what's known as the "double consolidation loophole" to lower their payments. Borrowers with, say, four loans can consolidate three of them into one loan and then consolidate that one into the fourth loan along with an income-driven repayment request form requesting lower monthly payments.
That last step recalculates your monthly payment to a percentage of your income, which can reduce payments considerably. The caveat: the loophole will close in July 2025. It's not an easy process, and takes about two months to complete, said Reinke.
If you're still paying your own college loans in addition to your child's, make sure you don't include those in the consolidation, Reinke said.
"One of the mistakes we see people make is that if they have their own student loans, sometimes they consolidate both," he said. "That's a big no-no. You want to keep Parent PLUS loans separate from your actual student loans."
If the consolidated package includes any Parent PLUS loans, it will not be eligible for any of the refinancing options available to students, Reinke added.
Many parents refinance their loans by switching them to their student's name, said Reinke. While most lenders will require you to cosign the loan, some have options to release cosigners after a certain number of on-time payments are made.
"Before considering a Parent PLUS loan, I always encourage families to explore scholarship and grant options first."
Considering a Parent PLUS loan? Some financial advisers say it's wise to be cautious. "Consider having your child borrow federal loans first before you take on debt," said Humann.
"Parents who do borrow for their child's education should compare federal options with private student loans," Humann said. "For parents with healthy credit and income, they may find lower interest rates and fewer fees on the private market. Plus, you can opt for a shorter repayment timeline, which can get you out of debt faster and save you money in the long run."
Robert Farrington, founder of The College Investor, said Parent PLUS loans are "the worst types of student loans" because they don't offer direct, income-based repayment plans and they don't qualify for any of the forgiveness programs.
"Before considering a Parent PLUS loan, I always encourage families to explore scholarship and grant options first," Farrington said. "Then, consider private student loans, as they have fewer fees and variable interest rates."