Income-driven repayment plans provide a way for student loan borrowers to seek a little relief from the burden of debt. These programs are primarily focused on student borrowers, which can leave parents saddle with Parent PLUS loans dealing with hefty monthly payments and seemingly no way to get them under control.
But there is a way to make a Parent PLUS Loan eligible for both an income-driven repayment plan and even Public Service Loan Forgiveness.
Current Income-Driven Repayment Plans
There are four income-driven repayment plans:
- Income Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income Contingent Repayment (ICR)
Each plan comes with stipulations about which borrowers and which loans are eligible based on dates of disbursement, income and type of loan.
Parent PLUS loans are only eligible for ICR, but not in their current state.
What makes you eligible for ICR?
ICR is the loosest of the three income-driven repayment plans and therefore also has the longest repayment period before forgiveness and the highest payments.
IBR payments (for borrowers before and after July 1, 2014) will either generally be 15% or 10% of discretionary income and never more than what you’d pay on the standard 10-year repayment plan. PAYE will generally be 10% and never more than what you’d pay on the standard 10-year repayment plan.
ICR will generally be 20% or what you would pay on a repayment plan adjusted to your income with fixed payments for 12 years. ICR also doesn’t have income caps in order to enroll, anyone with eligible student loans can make payments with this plan.
The Parent PLUS loan itself is not eligible for ICR, but you could use Federal Direct Consolidation in order to enroll in ICR. Both Federal Family Education Loans (FFEL) PLUS and Direct PLUS loans are eligible for consolidation and therefore refinancing with ICR.
Which loans are eligible for Federal Direct Consolidation?
These loans are all eligible for Federal Direct Consolidation:
- Direct subsidized and unsubsidized loans
- Subsidized and unsubsidized Federal Stafford Loans
- Direct PLUS loans
- PLUS loans from the Federal Family Education Loan Program
- Supplemental loans for students
- Federal Perkins and Nursing loans
- Health Education Assistance Loans
- Select existing consolidation loans
If you’ve already left school, fell below part-time employment, or graduated, you can consolidate your loans.
Private loans are not eligible.
How many loans do you need to consolidate?
Consolidation seems like it would imply needing more than one loan, but you can actually consolidate just one loan. You need to have at least one Direct Loan or FFEL Program loan that’s either in repayment or a grace period.
How much will it cost?
There is no application fee for consolidating your loans. You can also prepay your loan at any time without a penalty.
How much will my monthly payments be?
ICR is typically based on 20% of your discretionary income. Discretionary income is calculated as the difference between your income and 150 percent of the poverty guideline for both your family size and state of residence. You can also use the StudentLoans.gov Repayment Estimator to get an idea.
How is family size determined?
According to StudentLoans.gov’s Repayment Estimator:
“Family size includes you, your spouse, and your children (including unborn children who will be born during the year for which you certify your family size), if the children will receive more than half their support from you. It includes other people only if they live with you now, they receive more than half their support from you now, and they will continue to receive this support from you for the year that you certify your family size. Support includes: money, gifts, loans, housing, food, clothes, car, medical and dental care, and payment of college costs. For the purposes of these repayment plans, your family size may be different from the number of exemptions you claim on your federal income tax return.”
How long will consolidation take?
It could take two to three months to finalize the consolidation process and begin repayment, so this isn’t an immediate fix. You will also need to continue making minimum payments on your loans until the consolidation takes effect.
Can I lose benefits by consolidating?
Parent PLUS loans aren’t exactly full of benefits to begin with, but consolidating does make some loans ineligible for interest rate discounts, principal rebates, or some loan cancellation benefits. It’s unlikely you have these benefits with a Parent PLUS loan, but if your child is interested in consolidating, you should review if he or she would lose any benefits.
What are the steps to get a Parent Plus Loan on ICR?
Step 1: Apply for Federal Direct Consolidation Loan
You can do it electronically or via snail mail.
If you prefer to keep everything digital, you can complete the electronic version of the Federal Direct Consolidation Loan Application and Promissory Note by logging into StudentLoans.gov.
Those who would rather handwrite all the information and mail it in can download the Federal Direct Loan Consolidation Application and Promissory Note here.
Step 2: Choose the loans to consolidate and the servicer
Fill out which loan (or loans) you plan to consolidate and your loan servicer.
The loan servicers responsible for Federal Direct Consolidation are:
- FedLoan Servicing (PHEAA)
- Navient (formerly Sallie Mae)
- Great Lakes Educational Loan Service, Inc.
You can also list any loans you don’t want to consolidate on the form.
IMPORTANT: If you’re planning to do Public Service Loan Forgiveness (PSLF), then you want to work with FedLoan Servicing (PHEAA) as that’s the servicer for PSLF.
Step 3: Pick your repayment plan
Those filling out the application online can select ICR when prompted.
If you’re using the paper form, you’ll need to complete the Income-Driven Repayment Plan Request form that accompanies the application. You may need to contact your servicer to get the paper form.
Step 4: Review the terms & conditions of your consolidation
This step is self-explanatory. Be sure to read all that fine print!
Step 5: Borrower and reference information
If you’re filling out the paper form, this step is at the top of your form.
Those filling it out online will now need to submit personal information including:
- Social Security Number
- Date of birth
- Phone number
- Driver’s License State and Number
- Employer’s name and address
- Work phone number
The references need to be two people with different U.S. addresses that do not live with you and have known you for at least three years. You’ll provide their names, addresses, phone numbers and describe their relationship to you.
Step 6: Review and sign
Check to make sure all your information is accurate and then sign and submit your forms.
Tax Implications of ICR
The IRS could tax student loans forgiven after 25 years of repayments. By current IRS regulations, any outstanding balance forgiven can be considered income and therefore taxable. Outstanding balances forgiven under the Public Service Loan Forgiveness program are not consider income and thus aren’t taxable.
You can also refinance Parent PLUS Loans
Those with excellent credit could be eligible for competitive rates by refinancing a Parent PLUS loan with private companies like SoFi or Citizens Bank. This means you will need to repay the loan and it won’t be forgiven after 25 years of payments. But a lower interest rate could also help make your monthly payments more manageable.
Refinance with Earnest
Refinancing rates from 1.89% APR. Checking your rates won’t affect your credit score.