Federal Parents PLUS Loans may qualify for Public Service Loans (PSLF), but it’s a little complicated.
Parent PLUS Loans do not qualify for the restricted PSLF waiver.
How Parent PLUS Loans Can Qualify for PSLF
Parent PLUS loans are not directly suited to income-oriented repayment plans that are required to pay any remaining balance after 120 qualifying payments.
However, if parent company PLUS loans have been repaid since July 1, 2006 and are included in a direct federal consolidation loan, the income-based repayment consolidation loan (ICR), the oldest income-based amortization plan, is eligible. A Federal Direct Consolidation Loans that repays a Parent PLUS loan is not eligible for the other income-oriented amortization plans.
This provides a method for the PSLF to waive Parent PLUS loans by consolidating the Parent PLUS loans and choosing an income-based repayment plan for the consolidation loan.
To count towards forgiveness, 120 qualifying payments must be made while the loans in the direct loan program, qualifying repayment plan (earnings-based repayment or standard repayment) are repaid while the borrower works full-time in a qualifying public service.
Temporary Extended Forgiveness for Public Services (TEPSLF) allows payments made in phased repayment or extended repayment to count if the final year of payments is at least as high as an income-based repayment plan.)
All of these conditions must be met at the same time. Payments made before consolidation do not count because consolidation resets the payment clock. Employment in the public service prior to repayment of the borrower or prior to admission of the loans to the direct loan program does not count.
The temporary waiver of PSLF does not apply
The US Department of Education is running a temporary PSLF waiver By October 31, 2022, which allows for pre-consolidation payments on FFELP and Perkins loans, as well as payments in an amortization schedule, late payments, and partial payments to be counted. However, this waiver does not apply to Parent PLUS loans.
What if you are retired or not in the public sector?
To be counted towards the issuance of a public service loan, the qualifying payments must be made while the borrower is working full-time in a qualifying public service.
Volunteering doesn’t count, except for AmeriCorps and the Peace Corps.
Payments made while a borrower is unemployed or retired do not count towards the PSLF, but do count towards waiver after 20 or 25 years in an income-based repayment plan.
The pause in payment and the waiver of interest count towards the PSLF as if the payments had been made, but the borrower must still have been employed full-time in a qualifying public service. This requirement has not been waived.
There are two strategies followed by people who retire with federal debt on student loans. One is to pay off the debt in full upon retirement. The other is to use an income-oriented repayment plan or an advanced repayment plan (whichever results in the lowest monthly loan payment) to reduce the impact of loan payments on cash flow in retirement. Income-oriented repayment plans are based on adjusted gross income (AGI). Depending on whether the annuity plan distributions are included in AGI, this may reduce the monthly loan payment.
Extending the repayment period for retired borrowers has another slightly morbid benefit. Federal education loans are terminated on the death of the borrower and are not charged with the borrower’s estate. Parent PLUS Loans can also be paid after the death of the student for whom the loan was taken out. A longer term increases the likelihood that the loans will survive you. The death benefit is currently tax-free until December 31, 2025; this provision is expected to be extended or made permanent.