How to Consolidate Your Parent Plus Loan

UpdatedDec 23, 2011

3 min read

Key Takeaways:

Deferment and forbearance suspend Parent Plus Loan payments temporarily.
Parents also have two options for consolidating their Direct Loans.

Learn All About Deferment, Forbearance, Consolidation, and 3 Repayment Plans for Parent Plus Direct Loans.

Parents have several options if they cannot afford or otherwise want lower payments on their Direct Plus Loan for Parents, sometimes called a Parent Plus Loan. Direct Plus is federal student loan designed to help parents pay for their child’s education expenses.

Parent Plus Loan Deferment or Forbearance

Borrowers who cannot afford their monthly Direct Plus Loan for Parents may receive a deferment or forbearance to stop or lower the loan payments temporarily. Deferment postpones student loan repayment for a designated period, but is not granted if the loan is in default. Forbearance allows the borrower to stop making payments for a set period of time, and up to a year. Interest continues to accrue when a loan is in forbearance. In general, forbearance are easier to obtain than deferments or cancellations. Borrowers in default can, in some circumstances, obtain a forbearance. See the Bills.com resource Federal Student Loan Default and the Dept. of Education Postponing Repayment page to learn more.

Quick Tip

Need a student loan? See the Bills.com resource Student Loans resource page. Problem with a student loan? Learn more about Student Loan Consolidation.

Parent Plus Loan Repayment Plans

The Dept. of Education offers three repayment plans for Direct Loans. The terms differ between the repayment programs, but generally borrowers will have 10 to 25 years to repay a loan. The repayment plans are:

Standard: Pay a fixed amount each month until the loans are paid in full. Minimum monthly payments are $50, and the term is up to 10 years.
Extended: Pay a fixed annual or graduated repayment amount over a term of up to 25 years. The Extended plan’s advantage is low monthly payments. The disadvantage is the long term increases the loan's lifetime interest cost.
Graduated: Payments start low and increase every two years. Repayment period is up to ten years. Designed for borrowers who expect to see an increase in income.

See the Dept. of Education's Direct Loans: Standard, extended, and graduated repayment calculator for specific information tailored to your circumstances.

Parent Plus Loan Consolidation

Federal Direct Loans can be combined into one Direct Consolidation Loan. See the Dept. of Education Direct Consolidation Loan Web page to learn more.

Two other consolidation alternatives are a home equity loan or a cash-out refinance. These are options if you have good credit and equity in your home. If you have excellent credit, the interest rate available on a home equity loan could be significantly less than the rate you are paying on the PLUS loans. You should shop around with several different lenders to discuss the interest rates and payment amounts they can offer you.

Visit the Bills.com Debt Coach calculator for a customized, no-cost, no-nonsense analysis of your situation to learn if a refinance or home equity loan will save money for you.

Think carefully before you borrow money against your home to pay off your unsecured Parent Plus Loans. You are converting what was previously unsecured debt into secured debt. This could cause you problems in the future if for some reason you are unable to make your payments.

Parent Plus Loans, Income Tax Deductions, and Transferring a Loan

The interest a borrower pays on a Direct Plus Loan for Parents may be deductible on their federal income taxes. See the Bills.com resource Tax Deductibility of Student Loans to learn more about this possible tax deduction.

Some Direct Plus Loan for Parents borrowers have asked Bills.com if they can transfer their Parent Plus Loans to the student after graduation so that the student can benefit from the student loan deduction. Generally speaking, Direct Plus Loan for Parents may not be transferred to a former student once he or she has completed school, whether the reason is for tax planning or any other purpose.

1 Comments

MMacanandho, Nov, 2011

Why not consider a cash-out refinance option. For Example 11-1-2011 rates for 10-year are around 3.5-4.0 versus 6.9 or 8.9 (so-called low interest)parent plus loans. Since you are obviously a parent you may have or are more likely only 15 to 5 years left on a mortgage now depending on loan amount origination. Also you are more likely to have more equity built up in your home (even with recession hopefully you are fortunate enough). For example I owe $75,000 with about 9.2 years left and home Went from $280 to now $200K value. So I have at least 125,000 equity. I have Parent Plus loans of $40,000. It makes sense to take A refinance with cash out for $115,000. My payments are much smaller and if possible I can stil pay them off earlier to catch up to my 9.1 remaining years. Eventhough we only make $60,000 per year. This saves us on overall interest paid and we can deduct some of the closing costs and the mortgage interest at our 25% ? bracket. In fact I could possibly add my kids loans (by paying them off) at this lower rate and tax deductible on any interest paid. They can (yah right) pay me - or set up on auto payment to my account in their bill pay. In my case I could I am guessing/ praying their job as a PA, will be steady and pay well ( possibly more than my wife and I make together). But may due to economic uncertainty just encourage them to live like a college student or with us until they pay it off themselves-as they say they want to pay it off in 3 to 5 years vs. 10 or 20. Again like article says you risk secured debt. But if you have a lot of equity and your payment is fairly low ( ours is about $900.00 - not bad manageable and we have some savings built-up). So we still would have $95000 in equity left. Just use the calculations and then also use calculators that let you put in alternative rates and additional inputs to say if I add x amount per month and or if I want to pay off in 5 years instead of 10 , I need to make this payment (saving even more in interest and paying down sooner. But you must be disciplined to do so every month. Easiest is add it to your online banking's recurring payments, set it and forget it. Good Luck to all Student loan Borrowers and to getting a good or decent job.