Should you wait to consolidate Parent PLUS loans until your child graduates if you decide to apply for income-driven plans?
Normally, borrowers do not need to consolidate their loans to take advantage of income-driven repayment plans. But, Federal Parent PLUS loans are not directly eligible for income-driven repayment plans. Instead, one must consolidate the Federal Parent PLUS loans into a Federal Direct Consolidation loan. The consolidation loan is then eligible for income-contingent repayment.
Income-contingent repayment bases the monthly payment on 20% of discretionary income, which is defined as the amount by which income exceeds 100% of the poverty line, with a 25-year repayment term.
Use our Income-Contingent Repayment Calculator (ICR) to estimate the monthly loan payments and total payments for each of the income-driven repayment plans.
Since 2008, Parent PLUS loans have been eligible for a deferment while the student is enrolled in college on at least a half-time basis, and for 6 months after graduation. This change was enacted by the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA), in part because of a recognition that some students repay their parent’s Parent PLUS loans even though they are not listed as a borrower on the loans.
If a borrower of a Parent PLUS loan consolidates their loans during the in-school or grace periods, the loans will enter repayment within 60 days. Also, if the parent borrows additional Parent PLUS loans, they will have to consolidate them again.
If the parent is seeking an income-driven repayment plan because they are struggling financially, it might be better to wait until the end of the 6-month grace period to consolidate all of the Parent PLUS loans at one time. This will maximize the deferment period.
This may be a good strategy even if the parent is seeking public service loan forgiveness. The monthly loan payment under income-contingent repayment is the same, regardless of the amount of debt.
Income-contingent repayment does not have a standard repayment cap on the loan payments. But, loan forgiveness is per loan, not per borrower. So, the borrower will get more loan forgiveness if the start of repayment is synchronized across all of the loans.
Private parent loans are not eligible for income-driven repayment plans.
See also: Complete Guide to Parent Loans