If you borrowed money in the form of a Parent PLUS Loan to finance your child’s college education, then you may be wondering if the loan is eligible for forgiveness. Good news: The answer is yes. Depending on your income and line of work, you have a couple of different options available to you.
Option #1: Income-Contingent Repayment Plan
Income-Contingent Repayment (ICR) Plans feature flexible repayment options, based on your income and family size, in addition to loan forgiveness after 25 years. If you have consolidated multiple Parent PLUS Loans under the Direct Consolidation Loan Program, then you may be eligible to enroll in an ICR Plan. Under ICR Plans, your monthly loan payment is limited to not more than 20 percent of your discretionary income, or the amount that you would be required pay on a fixed 12-year repayment schedule, whichever is less. However, increases in your annual income can potentially result in higher monthly payments than would be required under a Standard Repayment Plan. In addition, you are obligated to certify your income and family size on an annual basis, otherwise your required monthly loan payment will automatically revert to the amount due under the Standard Repayment Plan (although, formally speaking, you would still be enrolled in the ICR Plan). ICR Plans offer loan forgiveness for any balance remaining after 25 years; however, you will be required to pay income tax on the forgiven amount in the year that the balance is forgiven. You could be facing a hefty tax bill in the year that you receive forgiveness, so it is important to plan accordingly.
Option #2: Public Service Loan Forgiveness Program
If you work full-time for the federal government or a qualifying nonprofit organization, then you may qualify for student loan forgiveness under the Public Service Loan Forgiveness Program. This program forgives outstanding loan balances for qualifying borrowers who make 120 qualifying monthly payments, which generally means that loan balances remaining after after 10 years are forgiven. Borrowers must be enrolled in an income-based repayment program, such as the ICR Plan described above (Note: The ICR Plan is the only income-based repayment plan for which parent borrowers qualify.) Borrowers enrolled in the Public Service Loan Forgiveness Program are not required to pay any income tax on forgiven amounts.
Utilize the Repayment Estimator Tool
If you are enrolled in one of these programs, you may be wondering how much of your debt will be forgiven. The Federal Student Aid Office of the U.S. Department of Education provides this handy Repayment Estimator tool to compute loan payments and forgiveness under different repayment programs. Borrowers can utilize this tool to explore all the repayment options available to them.