Opinion: The Hidden Costs Of Parent PLUS Loans

"Parents trying to pay off student loans borrowed for their kids’ college education, especially when they’re still trying to pay off their own, can be ... difficult. Case in point, I’m writing this article because of a comment from a parent on the article What Elizabeth Warren’s Student Loan Bill Is Missing," Reyna Gobel writes in a Forbes opinion piece

"Gail Larralde writes: 'I recently began ‘consolidating’ my loans – I have my own tuition loans and parent PLUS loans. My story is complicated, but in short, I am not eligible for the plans that Sallie Mae, the Department of Education, and Fedloan ‘informed me’ that I would be. My payment is $500 more per month than the payment would be if parent PLUS loans were not excluded from repayment options.'

How does the confusion happen? When you consolidate all your federal student loans together, you’re doing it to get one payment. Otherwise, you could have 16 different loans from eight semesters. On top of that, if you take out parent loans, you could have that many more for your child for every semester, too. Before you know it, that’s as much as 32 loans.

Who has time to think about 32 separate payments? But here’s the rub, Parent PLUS loans do not qualify for income-related repayment plans. So if a parent consolidates these loans with the loans they borrowed for their own education, they lose out on any income-related payment plans they could get on their own loans. And don’t forget, the parent loans were likely borrowed at a higher interest rate. …

If a parent has any inkling they might now or in the near future qualify for public service loan forgiveness, they should cancel their consolidation if the process hasn’t been completed yet. If a parent feels there was a mistake made during consolidation, he or she should contact their loan servicer or the student loan ombudsman.

If the consolidation is already complete, then the only thing that can be done is to pick an affordable payment plan based on the parent’s budget. The options are limited to generally an extended payment or a standard 10-year repayment plan. Remember, loans that include parent PLUS loans still allow for temporary payment breaks when experiencing a financial problem.

If all loans are currently separated, parents should keep their PLUS loans and their own loans separated. They can always consolidate their loans into separate groups: one loan for the parent loans and one for their own student loans to minimize the number of payments they have to make."

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