There is no escaping a Direct PLUS Loan, so not making payments and letting a PLUS loan go into default is a huge mistake. Even declaring bankruptcy will not dismiss the debt. Until the debt has been repaid, the government can garnish your wages, or withhold money from your Social Security benefits and tax refunds. What’s more, there are no time limits for when the government can collect the debt. So before you even consider defaulting, contact your loan servicer for advice, or seek out an attorney who specializes in student loan debt.
What’s more, unlike Sallie Mae loans, you won’t be able to have a PLUS loan balance forgiven if your child is later faced with total permanent disability (TPD).
What to Do Before You Take a PLUS Loan
Many times, a school will present the student’s financial aid package with a Direct PLUS Loan added in. The school might say that it wants to make families aware of all of their available funding options, but including the Direct PLUS Loan in the package can make the true cost of college confusing. When considering the costs of college, ask for a financial aid package breakdown without the PLUS loan.
Instead of a Direct PLUS Loan, you might have your child opt for a private student loan for any leftover costs that grants, work-study, federal student loans, scholarships, and other aid do not cover. If you want to help your child financially, you can make payments on the private loan while they are still in school. This allows you to subsidize your child’s college costs but doesn’t hold you solely accountable for the debt.
You may be able to refinance your PLUS loan to lower your interest rate or spread payments over a longer period.
What to Do if You Have a PLUS Loan
If you took out a Direct PLUS Loan for your child’s education and are struggling to pay it back, consolidation (as described above) might be an option. Be aware, though, that while increasing the length of your loan will decrease your monthly payments, it will also increase the total amount you will have paid by the end.
Refinancing the PLUS loan is another possibility. In fact, even if you are not struggling to repay your loan, it’s worth looking into refinancing to see if you can secure a lower interest rate and monthly payments.
The smartest financial move is to try to pay as much as you can toward the loan while you’re still earning money, even if it means you have to tighten your budget, and not take it with you into retirement.
Also try to avoid borrowing against your retirement funds, such as 401(k) plans, or cashing out of them early to cover the loan costs. Instead, if you are nearing retirement, consider working a few more years, if you are in any position to do so, to pay off the loan before retirement.
What’s a PLUS Loan?
Parent Loan for Undergraduate Students, or PLUS, originated in 1980 , and are federal loans that parents can take out to cover their child’s college costs. The parent, not the student, is responsible for repaying the PLUS loan. PLUS loans don’t qualify for all of the income-driven repayment plans that student loans do.
What are the interest rate specifications of a PLUS loan?
Typically the interest rate is fixed for the life of the loan. You may be able to refinance your PLUS loan to lower your interest rate or spread payments over a longer period. Remember taht payments and interest on student loans from federal agencies were suspended in 2020, resuming early 2022.