Democratic lawmakers unveiled a new plan last week that would dramatically expand student loan forgiveness and payment relief options for a key group of borrowers who increasingly are struggling with their debt burdens.
Parent PLUS loans are type of federal loan taken out by a parent to fund their child’s undergraduate education. These loans often have higher interest rates and, as a result, higher payments. In addition, Parent PLUS loans are locked out of key federal student loan repayment and forgiveness programs, which can put parent borrowers in an untenable situation if they experience job loss or a reduction in earnings.
A new bill, sponsored by Senator Chris Van Hollen (D-Md.) and Representative Alma Adams (D-N.C.), would allow Parent PLUS loans to access existing federal programs currently limited to student borrowers only. Other Senators who support the bill include Cory Booker (D-N.J.), Tim Kaine (D-Va.), Bernie Sanders (I-Vt.), Tina Smith (D-Minn.), Elizabeth Warren (D-Mass.), and Peter Welch (D-Vt.).
“Millions of parents who struggled to help their kids pay for college are now trapped in unsustainable debt – and it’s not just hurting them, it’s holding back our entire economy,” said Senator Van Hollen in a statement last week. “While the Biden-Harris Administration has taken important steps to expand income-based repayment options so students can pay off their loans, parent borrowers have been excluded from these programs, offering them little to no recourse. Our legislation will help those families chart a path to clear their debt and regain their financial footing,”
Here’s a breakdown of what the bill does, and what Parent PLUS borrowers should know.
Parent PLUS Loans Locked Out Of Many Student Loan Forgiveness And Repayment Programs
Federal law prevents Parent PLUS loans from accessing some of the most beneficial federal student loan relief programs, including most income-driven repayment plans. IDR plans allow borrowers to repay their loans based on a formula applied to their income and family size, with any remaining balance forgiven after 20 or 25 years.
By themselves, Parent PLUS loans are ineligible for IDR plans. If consolidated into a federal Direct consolidation loan, that consolidation loan can be repaid only under Income-Contingent Repayment, the oldest and most expensive IDR option. Other IDR plans, such as Income-Based Repayment, Pay As You Earn, and the SAVE plan, are largely inaccessible. This can also make it difficult for Parent PLUS borrowers to pursue other student loan forgiveness programs such as Public Service Loan Forgiveness, which often requires that a borrower be in an IDR plan.
A student loan borrower with an annual income of around $100,000 and a family size of 2 would pay around $870 per month under IBR, $580 per month under PAYE, and $450 per month under the SAVE plan. But under ICR — the only IDR plan available for consolidated Parent PLUS Loans — their payments could be over $1,300 per month.
Parent Borrowers Often Struggle With Repaying Their PLUS Loans
Parent PLUS loans were originally intended to help higher-income families cover shortfalls when a student’s federal student aid did not cover the entire cost of their education. Since parents are often are their peak earning years when their children enroll in college, these loans were supposed to be easily paid back.
“But as tuition has skyrocketed and the purchasing power of the Pell Grant has fallen, families with limited resources, particularly families of color, have increasingly turned to Parent PLUS loans to make up the shortfall,” said the congressional statement released last week. “The consequences of this have been enormous, trapping thousands of low-income American families under a crushing financial burden.” Parent PLUS recipients who have incomes below the federal poverty line rose by 350% between 1996 and 2018, said the statement.
Parent PLUS borrowers are typically not eligible for relief based on actions by the student borrower, even though the loan is taken out on behalf of the student. For example, if the student becomes disabled and can no longer work, the student could be eligible for a discharge of their own student loans, but not the parent borrower. Similarly, if the student commits to a public service career, the student could receive student loan forgiveness through PSLF based on that service, but the parent borrower cannot.
Parent PLUS borrowers who experience hardship and fall into default on their loans can face serious financial consequences including wage garnishment, Social Security offset, and even asset seizure in the event of collections litigation.
New Bill Would Expand Student Loan Forgiveness And IDR Plans To Parent PLUS Borrowers
Under the proposed “Parent PLUS Parity Act,” borrowers with Parent PLUS borrowers would no longer be limited to ICR, and would be able to access a number of newer, more favorable repayment, loan forgiveness, and discharge programs. The bill would do the following:
- Expand repayment options for Parent PLUS to all IDR programs including the new SAVE plan, IBR, and PAYE.
- Make Parent PLUS borrowers eligible for loan forgiveness if their child on whose behalf they’ve taken out loans becomes eligible for a discharge based on medical impairments.
- Make Parent PLUS borrowers eligible for automatic discharge if their child on whose behalf they’ve taken out loans has their own loans discharged under the Borrower Defense to Repayment program, which can eliminate federal student loan debt if a school engaged in certain forms of misrepresentations and related misconduct.
- Make Parent PLUS borrowers eligible for Public Service Loan Forgiveness, or PSLF, if their child on whose behalf they’ve taken out loans meets the eligibility criteria for student loan forgiveness based on nonprofit or government employment.
The bill also directs the Education Department to create a new student loan forgiveness pathway for Parent PLUS borrowers based on hardships including low income, age, and “other factors.”
Next Steps For Parent PLUS Loan Forgiveness Expansion Bill
The Democratic-sponsored bill is highly unlikely to advance in the current Congress, given narrow Republican control of the House of Representatives.
However, the upcoming national elections could be determinative of the bill’s fate. If Democrats manage to maintain control of the White House and Senate while capturing the House, the bill could have a chance to pass. Vice President Kamala Harris has expressed support for ongoing student loan forgiveness efforts.
Borrower advocates hope the bill will eventually become law and provide much-needed relief for Parent PLUS borrowers.
“This bill will help millions of parents who took out student loans to support their children in college and who now find themselves struggling to meet their monthly payments,” said Natalia Abrams, President & Founder of the Student Debt Crisis Center, in a statement last week. “This is one step towards a more fair and just student loan system, and brings us one step closer to achieving our goal of ending the student debt crisis.”