What Parent PLUS borrowers need to know about student loan forgiveness

President Joe Biden’s announcement last month to forgive borrowers up to $20,000 in student loans also affects the millions of parents who took out loans for their children’s education.

Debt forgiveness applies to so-called parent-plus loans, which parents can borrow to help their dependent child cover college expenses.

As tuition fees skyrocketed over the last few decades, more students are hitting their student loan limits, forcing parents to borrow more.

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More than 600,000 parents now take out student loans for their children each year, up from about 450,000 in 2000, according to data provided by higher education expert Mark Kantrowitz. Increased has. Parent PLUS loans have an average outstanding balance of approximately $30,000.

Many of these parents will now take some comfort.

“Both students and parents should apply for forgiveness,” Kantrowitz said.

Here’s what you should know:

President Joe Biden said in August that most federal student loan borrowers are eligible for waivers of up to $10,000 and up to $20,000 if they don’t receive a Pell Grant, a type of aid available to low-income college students. announced that there is if they did.

Aside from the relief available to their children, parents of Direct PLUS loans also have the right to cancel the loan as long as it falls below the income ceiling set by the President ($125,000 for individuals and $250,000 for households). If you get below those amounts in 2020 or 2021, you should be good.

In some cases, both parents have applied for a Parent PLUS loan for their child and both are individually eligible for loan cancellation.

Parents of undergraduates who received a Pell Grant are eligible for $20,000 loan forgiveness regardless of whether their child had a grant in their financial aid package. If not, but the child does, the parent is only entitled to a $10,000 cancellation fee.

To see if you are eligible for funding, visit Studentaid.gov.[My Aid]You can check your account in the section. Most of the recipients come from families whose income is less than her $60,000, Kantrowitz said.

The waiver amount announced by Biden is $10,000 or $20,000, per borrower. That means that across the various types of federal student loans you hold, that’s the limit of your relief.

Parent PLUS loans may be forgiven over your own student loans because the U.S. Department of Education prioritizes loans with higher interest rates.

Currently, Parent PLUS loans have interest rates close to 8%, while undergraduate student loans have interest rates of less than 5%.

No.

“Parents must apply separately from their children,” Kantrowitz said.

The Department of Education says applications will be ready by “early October”.

If you’re still in debt after your student loan forgiveness, you should be prepared to start billing again in January.

That’s when the pandemic-era relief policy of suspending federal student loan payments and interest will come to an end.

Kantrowitz said it could consider refinancing its remaining balance to get a lower interest rate.

However, while doing so can save you money, there are several reasons consumer advocates say you should proceed with caution when considering turning federal student loans into private debt.

The Department of Education will allow some borrowers to reduce their monthly payments if their income is low, and others will allow them to defer billing without accruing interest if they prove financial hardship. . The government also offers a loan forgiveness program for teachers and civil servants.

Private lenders typically only allow a limited break from payments during the period in which interest accrues.

As a result, Betsy Mayotte, president of the Association of Student Loan Advisors, said she could count the number of borrowers she thinks refinancing federal loans for private loans is a good idea.

“Private student loan refinancing can generate lower interest rates than federal student loan rates,” Mayotte said. it’s your only option. ”