What parents of PLUS loans need to know about student loan forgiveness
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President Joe Biden’s announcement last month that he would forgive student debt of up to $20,000 to borrowers will also impact the millions of parents who have taken out loans for their children’s education.
Debt cancellation applies to the so-called Parent PLUS loans, federal loans that parents can borrow to help their dependent children pay for college.
With tuition costs skyrocketing over the past few decades, more and more students are hitting the limit on how much they can borrow in student loans, forcing parents to borrow more.
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Currently, more than 600,000 parents take out student loans for their children each year, up from about 450,000 in 2000, according to data provided by higher education expert Mark Kantrowitz. The average outstanding Parent PLUS loan is about $30,000, he said.
Many of these parents will now get some relief.
“Both students and parents should ask for forgiveness,” Kantrowitz said.
Here’s what to know.
1. Am I eligible?
President Joe Biden announced in August that most federal student loan borrowers will be eligible for forgiveness: up to $10,000 if they don’t receive Pell sponsorshipis a type of aid available to low-income college students and up to $20,000 if they do so.
Separate from any relief their children may be eligible for, parents can PLUS LIVE loans will also be entitled to loan cancellation, as long as they are below the income limit set by the president: $125,000 for individuals or $250,000 for household. If you earn below these amounts in 2020 or 2021, you’ll be fine.
In some cases, both parents apply for a Parent PLUS loan for their children, and both are eligible to cancel the loan.
If a parent during their college years receives a Pell Grant, they will be able to receive $20,000 to clear their debt, whether or not their child is subsidized on their financial aid package. Likewise, if a parent did not receive a Pell Grant, but their child did, the parent may only be eligible to self-cancel $10,000.
You can check your account on Studentaid.gov, in the “My Aid” section to see if you received a grant. Most recipients come from families with incomes below $60,000, Kantrowitz said.
2. What if I have a Parent PLUS loan and my own student loan?
The amount of forgiveness announced by Biden, $10,000 or $20,000, is per borrower. That means that will be the limit on your relief, on any different types of federal student loans you have. It will also be the limit no matter how many kids you have borrowed.
While your Parents’ PLUS loans may be forgiven for your own student loans, because The US Department of Education is prioritizing loans with higher interest rates.
Currently, Parental PLUS loans come with interest nearly 8%compared to less than 5% for college student loans.
3. Should I apply for forgiveness with my child?
No.
“Parents should file separately with their children, as both of you are eligible for relief on your own,” says Kantrowitz.
The Ministry of Education has said an application will be ready before “early October.” The best, you will be ready to claim relief as soon as the app launches.
4. What if I still have Parent PLUS balance after being forgiven?
If you’re still in debt after your student loans are forgiven, you’ll want to prepare for the bills to continue in January.
That’s when the pandemic-era relief policy that suspends federal student loan payments and projected interest ends.
You might consider refinancing your remaining balance for a lower interest rate, says Kantrowitz.
However, while doing so can save you money, there are several reasons that consumer advocates say caution should be taken when thinking about turning your federal student loans into cash. private debt.
Your rate doesn’t matter if you lose your job, have sudden medical expenses, can’t afford your payments, and find that default is your only option.
Betsy Mayotte
President of the Student Loan Advisory Institute
The Department of Education allows some borrowers to have their monthly payments reduced if their income is low, and others to defer their bills without interest if they demonstrate economic hardship. . The government also offers debt relief programs for teachers and civil servants.
Private lenders typically only allow limited interruptions in your payments, during which time interest rates go up.
The result is, Betsy Mayottepresident of the Student Loan Advisors Institute, said on the one hand she can count on the number of borrowers that she considers refinancing their federal loans into private loans a good opinion.
“Refinancing a private student loan can generate a lower interest rate than federal student loan rates,” says Mayotte, “but your rate doesn’t matter if you lose your job, there are medical costs. financial crisis, default, and find that default is your only option. “