Federal Parent PLUS Loans may be eligible for Public Service Loan Forgiveness (PSLF), but it’s a bit tricky.
Parent PLUS Loans do not qualify for the Limited PSLF Waiver.
How Parent PLUS Loans May Qualify for PSLF
Parent PLUS loans are not directly eligible for income-based repayment plans, which are required to have outstanding debt to be canceled after 120 qualifying payments.
However, if Parent PLUS Loans have entered repayment since July 1, 2006 and are included in a federal direct consolidation loan, the consolidation loan is eligible for Income Contingent Repayment (ICR), the oldest repayment plan focused on income. A federal direct consolidation loan that has repaid a Parent PLUS loan is not eligible for other income-based repayment plans.
This provides a method of canceling Parent PLUS loans through PSLF by consolidating Parent PLUS loans and choosing an income-contingent repayment plan for the consolidation loan.
To be considered for cancellation, 120 qualifying payments must be made while loans are being repaid under the Direct Lending Program, in an Eligible Repayment Plan (Income-Based Repayment or Standard Repayment), while the borrower is working full-time in an eligible public service job. .
The Extended Public Service Loan Vacation Forgiveness (TEPSLF) allows payments made under a gradual repayment or extended repayment to count, if the last year of payments is at least equal to what they would have been in an income-oriented repayment plan.)
All of these conditions must be fulfilled simultaneously. Payments made before consolidation do not count, as consolidation resets the payment clock. Employment in the public service before the borrower started repayment or before the loans entered the direct lending program does not count.
PSLF temporary exemption does not apply
The United States Department of Education sets up a temporary program PSLF derogation through October 31, 2022, which counts payments on FFELP and Perkins loans before consolidation, as well as payments under any repayment plan, late payments and partial payments. This waiver, however, is not available for Parent PLUS loans.
What if you are retired or do not work in the public service?
To qualify for the public service loan exemption, qualifying payments must be made while the borrower is working full-time in eligible public service employment.
Volunteer work doesn’t count, except for the AmeriCorps and the Peace Corps.
Payments made while a borrower is unemployed or retired do not count for PSLF, but they do count for forgiveness after 20 or 25 years in an income-driven repayment plan.
The payment break and interest relief count towards the PSLF as if the payments had been made, but the borrower must still have been employed full-time in eligible government employment. This requirement has not been waived.
There are two strategies pursued by people retiring with federal student loan debt. One is to pay off all of the debt at retirement. The other is to use an income-driven repayment plan or an extended repayment plan (whichever yields the lowest monthly payment) to reduce the impact of loan repayments on retirement cash flow. Income-based repayment plans are based on adjusted gross income (AGI), so depending on whether retirement plan distributions are included in the AGI, it can reduce the monthly loan payment.
The longer repayment term for retired borrowers has another somewhat morbid benefit. Federal student loans are canceled upon the death of the borrower and are not charged to the borrower’s estate. Parent PLUS loans can also be canceled upon the death of the student in whose name the loans were borrowed. A longer repayment term increases the likelihood that the loans will outlive you. Currently, the Death Release is tax exempt until December 31, 2025; this provision is likely to be extended or made permanent.