Last Thursday, President Trump announced his budget plan, which includes some dramatic changes for student loan borrowers. One of these big changes is to income-driven repayment. The budget proposes to eliminate the multiple existing income-driven repayment plans and replace them with a single income-driven repayment plan. The proposed plan offers some pros and cons. However, the plan would not be available to parents who take out parent PLUS loans after July 1, 2018.
PLUS loans are an important option for some families when the Stafford loan limits are insufficient to cover the cost of their child’s education. However, as we’ve written before, with no loan limits and no ability-to-pay standard, PLUS loans can have serious consequences for borrowers who ultimately cannot afford them. If they default, parent PLUS borrowers face the full range of draconian government collection powers.
At present, parent PLUS borrowers already have fewer income-driven repayment options than other federal student loan borrowers. They are not eligible for the more generous Income-Based Repayment (IBR) or Revised Pay As You Earn (REPAYE) plans. Nonetheless, they can consolidate their PLUS loans and apply for Income Contingent Repayment (ICR). ICR usually requires higher payments than IBR or REPAYE, but is still based upon income. This option is complicated and too few borrowers know how to access it. However, for those who do, it is a valuable lifeline.
Under the administration proposed budget, student loan borrowers (other than parent Plus borrowers) who took out loans after July 1, 2018, could choose an income-driven plan that makes their monthly payments equal to 12.5% of their discretionary income. It would forgive the remaining loan balance after 15 years of repayment for borrowers with only undergraduate debt, and after 30 years for borrowers with any amount of graduate-level debt. Parent PLUS borrowers would not be eligible for this plan at all.
We regularly hear from financially distressed parent PLUS loan borrowers. Because they have fewer options than other federal loan borrowers, too many end up in default in many cases. One parent borrower wrote to NCLC about her son, “… a high school student with a promising future (so we thought). His father became permanently disabled just prior to our son starting High school. At this time, we also had a first-born disabled son and a second son who became a father during his high school years.” According to this parent, “I believed that our son would graduate and assume all loan debt that I acquired for him since he couldn’t, so I took out Parent Plus loans so he could attend college. Our income had dropped due to my husband’s permanent disability, but I kept my faith and believed all would work out. After all, I thought if only our son could attend four year college, he would be like all our friends kids and grow to be responsible and independent and everything would be great. Our son had his first of two back surgeries (one attending college) summer after his freshman year. Finally, chronic pain and mental health illness caused him to withdraw from College after his third year. He did have a second back surgery and also became 100% permanently disabled. In the recent years, I also had a back surgery related to a work injury…I am unable to work full-time hours.”
These parent PLUS borrowers need access to an affordable repayment option.
Have you taken out Parent PLUS loans to help pay for your child’s education? Are you struggling to make payments? Tell us your story.