My son graduated from college in May of this year, and fortunately, he found a job right away. He has about $40,000 in student loans which he will begin to pay back starting in January of 2022.
We took out $40,000 in loans on his behalf, too, because he was at risk of being forced to leave school because he ran out of funding. I had always assumed he could just take over my loan payments, too, when he got a job, but he says he can't afford to do that. I can't afford them, either. And because of COVID, I haven't had to make a payment yet.
I think they're called Parent PLUS loans. What should I do?
– Marie, Oklahoma City
The good news is you have until the end of January 2022 to come up with a workable strategy, as that's when the COVID-related student loan suspension ends. The less-than-ideal news is I don't think you're going to like any of your options.
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Parent PLUS loans are student loans which parents acquire in order to fund their child's education. The parent is not a co-signer; the parent is the sole borrower. The student has no contractual – or moral for that matter – obligation to make payments for their parents. Marie, like many families, your situation became difficult when you tried to solve another difficult situation: running out of funding.
The nightmare scenario is leaving school with an unfinished degree and tons of student loan debt. This is why so many parents find themselves with Parent PLUS loans. Loving, selfless parents approach the problem with a "we'll figure it out" attitude, and then realize how precarious of a situation they've put themselves in, years later.
You need a plan of attack, because this problem you're experiencing is not going away anytime soon. Your goal should be to solve this problem, without involving your son. It's an incredibly difficult goal, because the whole reason you're in this situation is because you wanted to help him avoid the nightmare scenario I described above.
Theoretically, you could refinance or consolidate your Parent PLUS loans to lower your interest rate. And while this could help you from a cash flow perspective, it does mean you'd abandon many of the benefits federal loans provide. For instance, if you had private loans, this last 18 months or so of 0% federal student loans wouldn't have applied to you, and you would have had to make a payment throughout the pandemic.
Your best option is likely Income-Contingent Repayment (ICR), because you can lengthen your repayment period from 10 years to 25 years. As you know, the longer the repayment period, the less your monthly payment will be.
Of course, I don't want you to have to make payments on these loans for the next two-and-a-half decades, but I'm not sure there's a better option. You've expressed a concern about being able to cash-flow the loan payments. ICR may provide the relief you're looking for.
If you happen to work full-time for a non-profit organization such as school or healthcare system, you may be eligible for Public Service Loan Forgiveness (PSLF) after 120 payments. You would take advantage of this in conjunction with Income-Contingent Repayment (ICR). After the 120 payments, the remaining loan balance would be forgiven. PSLF has a bad reputation due to the low forgiveness rate, but to be fair, most people simply don't understand how it works.
So far, none of these solutions have involved your son and his financial life. However, if none of the options I've mentioned are feasible, you may need to have an honest conversation with your son about working collectively to solve this problem.
This is the unfortunate awkwardness of Parent PLUS loans. Parents take them on to provide a better future for their children, but the cost can be the parent's future if the parent doesn't have the means to back their bet.
The harshest of realities is your family should have selected a more affordable school which wouldn't have led to your act of emergency funding in the form of Parent PLUS loans. I don't mention this to salt your wounds; I mention this in case you have any other children who might attend college.
No matter what path you choose, be sure to choose a path other than defaulting on the loans. Your problem will get much worse if you choose to act like the problem doesn't exist.
This article originally appeared on USA TODAY: College loans: How do repayments work for Parent PLUS loans?