Who’s Left Out of the Latest Student-Loan Plan? Parents
Summary
Parent Plus loan borrowers weren’t included in the new income-driven repayment options.
Millions of parents who took out student loans on behalf of their children were left out of the Biden administration’s new repayment plans.
Parent Plus loans, which account for more than $111 billion in outstanding student debt, aren’t eligible for the lower monthly payments and shorter paths to forgiveness offered under the new Saving on a Valuable Education (SAVE) program announced in January. Neither were they part of the one-time adjustment in July to other income-driven repayment programs that awarded borrowers nearly $40 billion dollars in debt relief. There is a way to convert Parent Plus loans into one that is eligible, but it is complicated.
“We are committed to continuing to explore options for parent borrowers," the Education Department said.
Many of the 3.7 million parents who hold this debt are low-income borrowers, leaving them especially vulnerable to the toll such debt can take, said Awilda Rodriguez, associate professor of education at the University of Maryland.
People often choose Parent Plus loans when standard federal loans and grants from schools don’t cover their child’s tuition and expenses. “It is so much more emotional. When parents are trying to decide whether or not they’re going to sign on the dotted line, they want to realize their children’s dreams," said Rodriguez.
Parent Plus loans allow parents to borrow as much money as needed to cover all costs of school attendance, minus any financial aid the child receives as a student.
The interest rate on Parent Plus loans is often higher than those of other federal student loans. As of July 2023, the interest rate for parent borrowers was 8.05%, according to the Education Department. The interest rate for direct unsubsidized loans is 5.50% for undergraduate students and 7.05% for graduate and professional students.
Howard Fulton, a 71-year-old retired technology and risk professional and father of seven from Monmouth County, N.J., is carrying nearly $100,000 in Parent Plus loans.
“It’s hanging over me," he said of the payments, which total more than $1,000 a month. “It’s an extra mortgage."
Fulton learned that being behind on his Parent Plus loans can mean part of his Social Security benefits would be withheld to pay the loans. He and his wife eventually worked with their servicer on a reduced payment plan, but he said the experience woke him up to the reality of the loans’ ballooning balances.
“No one explains anything," he said.
Parent Plus borrowers can take advantage of some alternative repayment options, such as income-contingent repayment plans and the Public Service Loan Forgiveness Program, or PSLF. They first have to consolidate their debt into a new loan.
For families with multiple Parent Plus loans, there is also a loophole that lets borrowers convert their debt to loans that are eligible for lower monthly payments under the new plans, said Andrew Paulson, co-founder and lead consultant of StudentLoanAdvice.com.
Completing this arduous process allows borrowers to take advantage without taking their loans private or losing out on those benefits. The Massachusetts Office of the Attorney General published instructions on how to complete the steps for this double consolidation.
Borrowers interested in this option must move swiftly, as the Education Department is expected to close the loophole for these double consolidations by July 2025.
Essentially, the borrower consolidates their loans twice. First, each loan is consolidated separately with a different servicer. Then they consolidate the new loans again with yet another servicer.
After that loan is approved, the debt is no longer a Parent Plus loan and the borrower can then enroll in SAVE or another existing repayment plan.
“Once you’ve done it, you can’t undo that," Paulson said of the time-consuming process.
Write to Julia Carpenter at julia.carpenter@wsj.com
