As parents, we do everything in our power to make sure our children have the best life possible. But sometimes, like all of us, their choices don’t pan out. Perhaps they took on too many student loans and now aren’t able to find the kind of job that would allow them to make good on those loans or perhaps they’re just entering college and want to know what their future holds in terms of paying off those loans.
The millions of parents who have taken out loans for their children’s education as a result of President Joe Biden’s statement last month that he will erase up to $20,000 in student debt for students will also be impacted.
The so-called Parent PLUS loans, which are federal loans that parents can take out to assist their dependent children in paying for college, are subject to the debt cancellation.
Due to rising tuition expenses over the past few decades, more students are borrowing more from their parents because they are reaching their student loan borrowing limitations.
According to figures given by higher education expert Mark Kantrowitz, each year more than 600,000 parents borrow money to pay for their kids’ education, up from around 450,000 in 2000. According to him, the typical Parent PLUS loan with a balance is around $30,000.
Now there will be some respite for many of these parents.
Parents and students should both ask for forgiveness, according to Kantrowitz.
Here’s what to know.
- Am I eligible?
Most federal student loan borrowers will be eligible for some forgiveness, according to President Joe Biden’s announcement in August. The amount of forgiveness will range from $10,000 to $20,000 depending on whether the borrower received a Pell Grant, a type of financial aid available to low-income undergraduate students.
Parents having Direct PLUS loans will be entitled to debt cancellation in addition to whatever assistance their children may be qualified for, so long as they are under the president’s established income limits of $125,000 for individuals and $250,000 for families. You should be fine if your earnings in 2020 or 2021 were less than these sums.
In some circumstances, both parents who filed for Parent PLUS loans for their children will be qualified for loan forgiveness on an individual basis.
Whether or whether their child earned a Pell Grant as part of their financial assistance package, a parent who received a Pell Grant during their undergraduate studies is eligible for the $20,000 in loan forgiveness. In the same way, if a parent’s child received a Pell Grant but they did not, the parent is only eligible for $10,000 in cancellation.
To find out if you received the grant, visit your account on Studentaid.gov in the “My Aid” area. According to Kantrowitz, the majority of beneficiaries come from households with annual incomes under $60,000.
- What if I have both my own student loans and Parent PLUS loans?
The $10,000 or $20,000 in forgiveness that Biden offered is per borrower. Your relief will thus be limited to that amount for all federal student loans of the various forms you may have. Regardless of how many children you borrowed for, it will also be the maximum.
Although the U.S. Department of Education prioritises loans with higher interest rates, your Parent PLUS loans can be forgiven before your own student loans.
Parent PLUS loans now have interest rates about 8%, as opposed to undergraduate student loans, which have rates around 5%.
- Should I seek pardon together with my kid?
As you are both qualified for your own relief, Kantrowitz advised that parents submit separate applications from those of their children.
By “early October,” according to the Education Department, an application will be available. You should be prepared to submit a request for relief as soon as the application opens.
- What if I still owe money to Parent PLUS after being pardoned?
After student loan forgiveness, if you’re still in debt, you should be ready for your bills to start coming in again in January.
The pandemic-era relief measure that suspended federal student loan interest and payments will expire at that time.
According to Kantrowitz, you can think about refinancing your remaining amount to get a reduced interest rate.
Consumer advocates advise exercising caution when considering turning your federal student loans into private debt, despite the fact that doing so might save you money.
Some debtors are permitted by the Education Department to make smaller monthly payments if their income is insufficient, while others are permitted to postpone their debts without incurring interest if they can demonstrate economic hardship. For teachers and other public employees, the government also provides loan forgiveness programmes.
Private lenders usually only permit brief interruptions in your payments, at which time interest accrues.
Because of this, Betsy Mayotte, president of The Institute of Student Loan Advisors, said she can only think of one customer for whom she believed it was a smart idea to refinance their federal loans into private ones.
Private student loan refinancing can result in lower interest rates than federal student loan rates, according to Mayotte, but your rate won’t matter if you lose your job, incur unexpected medical costs, are unable to make your payments, and discover that defaulting is your only alternative.