Parent PLUS Loan Deferment: When Do You Start Paying?
A Parent Plus Loan is another option to pay for college. This article will help you understand when to start paying this type of loan back.
A Parent Plus Loan is a federal loan that parents can take out to fund their child's college education. These loans can be used as a primary source of funding or as a means to cover remaining tuition costs after the child has maxed out their federal student loan limit.
If you're considering or have already taken out a Parent Plus Loan, you might be wondering when the repayment process starts. We've got the answers you need below.
When Do You Start Paying Parent PLUS Loans?
Your Parent PLUS loan is due as soon as the final loan installment for that academic year has been disbursed. For most parents, this will be after the loan for the spring semester has been disbursed, unless your child is only attending classes in the fall.
Parents who need more time may contact the loan servicer to request a deferment, which will allow them to avoid payments while their child is enrolled at least part-time. Part-time status usually means taking six credit hours each semester.
If they decide to defer their loans, parents will also receive a six-month grace period after their child graduates, leaves school or drops below part-time hours. Once those six months are up, the first payment will be due.
Like Direct Unsubsidized Loans, interest will still accrue during all deferment periods for Parent PLUS loans. If you don’t repay the interest before the deferment period is over, it will be capitalized or added to the total loan balance. Capitalization will increase both the monthly payment and the total interest paid over the life of the loan.
Parents can make interest-only payments during deferment to prevent interest from being capitalized. Contact your loan servicer to set up interest-only payments.
How to Manage Parent PLUS Loans
The default repayment plan for Parent PLUS loans is the standard plan, which has a 10-year term and fixed monthly payments. But if you can’t afford those payments, you can choose from the extended, graduated or income-driven repayment plan. Use the official loan simulator to see what kind of payment fits your budget.
Here’s how these payment plans differ:
While students have access to five different income-driven repayment plans, parents only have access to one: the income-contingent repayment (ICR) plan.
Under the ICR plan, payments are the lesser of 20% of your discretionary income or the monthly amount you would pay on a 12-year fixed repayment plan. Discretionary income is your annual income minus 150% of the federal poverty guidelines for your state and family size.
Parents must first consolidate their Parent PLUS loans into a Direct Consolidation Loan to be eligible for ICR. There is no fee to consolidate. Just contact your loan servicer and ask them to consolidate all your loans. The repayment term for ICR is 25 years, after which time the remaining balance is forgiven.
Parents may have to pay income tax on the forgiven amount. However, parents whose repayment term ends before or during 2025 can receive tax-free loan forgiveness due to the passage of the American Rescue Plan Act of 2021. Some experts believe Congress will extend the tax-free benefit, but that is to be determined.
The graduated repayment plan has a 10-year term for Parent PLUS loans, but parents who consolidate their loans into a Direct Consolidation Loan will have a 30-year term. Payments start low and increase every two years until the loan is paid off.
There is no loan forgiveness component with the graduated plan.
The extended repayment plan has a 25-year term with either fixed or graduated monthly payments. There is no loan forgiveness available with this plan.
Apply for Public Service Loan Forgiveness
Parents who work for the government or a non-profit may be eligible for Public Service Loan Forgiveness (PSLF) after making 120 payments. They must work full-time hours to qualify, but the hours can come from two or more eligible employers. Parents must be W2 employees; contractors or freelancers are not eligible for PSLF. Only payments made under an eligible employer will fulfill the requirement. Interest-only payments made under deferment will not count.
After making 120 qualifying payments, the remaining balance will be forgiven. Unlike income-driven loan forgiveness, borrowers will never owe taxes on the forgiven amount.
Parents should submit the PSLF employer certification form annually to verify that their payments meet the eligibility requirements. For Parent PLUS loans, the PSLF requirements only apply to the parent and not the student. It doesn’t matter where the student works or what kind of payment plan they’re on.
Parents must be on the ICR plan to qualify for PSLF. The extended, graduated and standard plans are not eligible.
Refinance Your Parent PLUS Loans
Refinancing your Parent PLUS loan can reduce your monthly payment, lower the interest rate or both. The current interest rate for Parent PLUS loans disbursed between July 1, 2021 and July 1, 2022 is 6.28%. Since overall interest rates are still low right now, parents could save money by refinancing.
Let’s say you have a $50,000 Parent PLUS loan with a 6.28% interest rate and a 10-year term. You decide to refinance to a 4% interest rate and a 10-year term. Your new payment would be $56 less, and you would save $6,711 in total interest over the life of the loan.
If your focus is on lowering your payments, you can refinance to a 15-year term. Your monthly payment would be $192 less each month and you would save $888 in total interest.
Juno can help you to find a student loan or refinance a loan at the most competitive possible rate. We get groups of buyers together and negotiate on their behalf with lenders to save them money on private student loans and private student loan refinance loans.
Zina Kumok is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 worth of student loans in three years at Conscious Coins.
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