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Should I Pay My Parent Plus Loans Aggressively?

Barry Coleman September 15, 2022
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Q: My dad took out Parent Plus loans to help me pay for school. The loan has grown by 10k even though he has been paying on it because of the capitalization. He can’t afford the payments so I’m taking them on. Should I get a second job to pay these off aggressively? Is it worth it to use all my savings for this?

A: It’s very honorable that you are taking on the moral obligation of repaying your father’s loan. Many parents take on Parent PLUS loans to help their children without considering that they may face the challenging financial landscape of retiring with the burden of student loan payments. But there’s some good news for you. The Department of Education recently announced that qualified Parent PLUS loans are also eligible for the $10,000 loan forgiveness. So I recommend focusing on that first and then creating a strategy to pay off the remaining balance.

The Student Loan Forgiveness Application

Your first step is determining if your father’s loan qualifies for loan forgiveness. He’ll be eligible if his annual federal income is below $125,000 (individual or married, filing separately) or $250,000 (married, filing jointly, or head of household) in 2021 or 2020. If he meets the eligibility requirements, reach out to his servicer to ensure they have his current contact and income information. The application will be available on the Department of Education website in early October. They recommend that borrowers apply as soon as possible since they estimate that 8 million borrowers are eligible for the forgiveness. However, the application deadline is Dec. 31, 2023. Once the application is submitted and approved, they estimate that borrowers can get relief within 4-6 weeks. Visit the U.S. Department of Education website for details and application updates.

Planning a Repayment Strategy

If the $10,000 are applied to your father’s loan, his remaining balance will be recalculated, likely reducing his monthly payment. So, based on that, you can plan your repayment strategy. There are two main strategies to manage your debt: paying it faster and saving the most in interest or lowering your monthly payments to make them more manageable. If you want to pay it faster, taking on a second job can help, especially if you can pay more to the principal than the minimum due. I recommend reassessing your finances and creating a new budget to allocate as much as possible toward repayment before you dip into your savings. It’s essential to have savings to get you through emergencies that sometimes are unavoidable.

You can consider other strategies, such as refinancing the loan in your name to get a lower interest rate with a private lender. This is all contingent on you having good credit and the benefit of getting a lower interest rate from the lender. On the downside, private lenders do not offer the same repayment benefits as the federal government, so that’s something to keep in mind.

Other options to lower your father’s monthly payments can include Parent PLUS loan consolidation or applying to other repayment options such as the Income-Contingent Repayment plan. Lowering your monthly payments often extends the repayment period, increasing the interest accrued over the life of the loan, which will cost you more. So, it’s essential to consider your father’s age and retirement plans.

These repayment strategies can work for you even if your father’s loan does not qualify for forgiveness. It’s well known that navigating the student aid forgiveness process is not always easy, but you don’t have to do it alone. You can find support and guidance to help you manage this process and set a repayment strategy in place by finding a certified financial counselor at one of our trusted agencies online or calling 800-388-2227 for help. They can help you review your options and plan for a solid financial future for both of you.