By Jane Fox | January 13, 2023
For too long, Parent PLUS loan borrowers have been treated as second class citizens—excluded from critical supports and benefits that all struggling borrowers are entitled to and deserve. In the final days of 2022, however, the U.S. Department of Education (ED) quietly announced a policy change that will finally bring PSLF Parent PLUS loan borrowers much needed and deserved relief.
In 2021, when ED announced the Limited Public Service Loan Forgiveness (PSLF) Waiver, a temporary fix to a beleaguered federal cancellation program, millions of dedicated public sector workers breathed a sigh of relief that they finally had a path to cancellation. Yet, one group was inexplicably left out: Parent PLUS loan borrowers.
Then, in October 2022 just as the Limited Waiver was ending, when ED clarified its forthcoming Income Driven Repayment (IDR) Account Adjustment plan, which would help even more borrowers achieve student loan debt cancellation, Parent PLUS loan borrowers pursuing PSLF were left out again. But thanks to the Department’s late December policy change, Parent PLUS borrowers will now be able to count time received though the Account Adjustment towards PSLF.
WHAT ARE PARENT PLUS LOANS AND HOW DO THEY TRADITIONALLY ACCESS PSLF?
Parent PLUS loans are federal student loans that parents take out for their dependent child or grandchild. Dubbed “subprime loans for college,” they are generally more expensive than other federal student loans and have limited access to the typical repayment plans. Traditionally, in order to benefit from PSLF, Parent PLUS loan borrowers must first consolidate their loans into a Direct Consolidation Loan. Once consolidated, Parent PLUS loan borrowers can access the Income Contingent Repayment (ICR) plan, the only income driven repayment plan available to Parent PLUS borrowers. Borrowers should note that payments under the ICR plan are generally higher than those under the other income driven repayment plans, and so should review their estimated payments before deciding to consolidate. Although many borrowers can accrue PSLF-eligible payments through the 10-year standard repayment plan, most borrowers who pay under that plan would qualify for PSLF cancellation at the 10-year mark, the same time that they would pay off their loans, thereby missing out on the actual benefit of cancellation.
WHAT IS THE IDR ACCOUNT ADJUSTMENT
IDR was originally designed to offer borrowers a reduced monthly payment tied to their income, not their outstanding balance. In theory, federal law also provides that after a 20 or 25 year IDR repayment term, the borrower’s debt is cancelled in full. However, in recent years, investigations by SBPC and the National Consumer Law Center, National Public Radio, and the Government Accountability Office revealed widespread problems with IDR. To rectify these issues, ED announced a one-time IDR account adjustment in April 2022. All loans, including Parent PLUS loans, will automatically receive IDR credit for any month that the loan has been in repayment status and certain periods in forbearance or deferment. Borrowers with commercially held Federal Family Education Loans (FFEL) or Perkins loans who consolidate their loans by May 1, 2023, will also receive the adjustment benefits. ED anticipates applying these adjusted IDR credits to borrowers in July of 2023. For more information go to CancelMyStudentDebt.org.
Parent PLUS loan borrowers have been eligible for these aspects of the IDR Account Adjustment since its announcement, but initially were unable to apply these IDR credits toward PSLF cancellation.
THE IDR ADJUSTMENT AND PSLF
Importantly, the IDR credits count as eligible payments for PSLF. Additionally, because borrowers can consolidate their loans without losing credit for past time if they do so by May 1, 2023, the adjustment also helps public sector workers receive PSLF credit regardless of whether they currently have the “right” type of loan (i.e. a Direct or Direct Consolidation Loan). Essentially, a borrower who has worked in public service but who had the wrong loan type or was in the wrong repayment plan can correct those issues, get credit for past time, and either have their loan cancelled or position themselves to continue accruing credit under the program.
Any month credited under the IDR adjustment can count towards PSLF as long as the borrower provides proof they were working in a qualifying public service job at the time. Borrowers provide proof by filling out the PSLF form or by accessing the PSLF Help Tool. Although borrowers who need to consolidate must do so by May 1, 2023, there is no deadline by which borrowers must certify their past employment to have the adjusted IDR credits count towards PSLF. However, borrowers must be employed in public service at the time they apply for cancellation and remain in qualifying employment until their application is approved.
PARENT PLUS LOAN BORROWERS WILL FINALLY BE TREATED THE SAME AS OTHER BORROWERS SEEKING PSLF
Late last year, ED revised its website to clarify that the application of IDR adjusted credits toward PSLF “will be applied automatically to all PSLF-eligible Direct Loans, including consolidated and unconsolidated Parent PLUS loans.” With this simple sentence, ED unlocked PSLF cancellation for public sector workers with Parent PLUS loans in a way that previously was made impossible.
Now, borrowers with consolidated and unconsolidated Parent PLUS loans can also receive credit towards PSLF under the IDR adjustment. Parent PLUS loan borrowers who receive 120 or more IDR credits for periods during which they also had qualifying employment will be eligible for full PSLF cancellation.
WHAT PARENT PLUS LOAN BORROWERS NEED TO KNOW
First, Parent PLUS loan borrowers should learn about what jobs qualify for PSLF and familiarize themselves with the PSLF requirements. If you have never submitted a PSLF form before or used the PSLF Help Tool, you can start collecting and submitting your forms to qualify previous employment right now. There is no need to wait. Any months you have previously qualified for PSLF remain on file. You may submit forms for qualifying jobs where you no longer work. You can also send a form from your current employer to cover months you continued to work since you last submitted. If you have a prior job you would like to qualify, but the organization no longer exists, simply fill out the box at the bottom of page 1 of the PSLF form to self-certify your employment.
Second, Parent PLUS borrowers who have other types of federal student loans such as commercially managed FFEL, Perkins, or Health Education Assistance Loan (HEAL) Program loans in addition to their Parent PLUS loans should consolidate their loans prior to May 1, 2023 to make sure as much debt as possible is covered under the IDR adjustment. Borrowers can apply for consolidation directly at studentaid.gov.
Best of all, any cancellation under PSLF will not be subject to federal income tax, and cancellation under IDR Account Adjustment is also tax free at the federal level through 2025 thanks to the American Rescue Plan Act. There may be state tax implications and we encourage borrowers to consult an accountant.
Jane Fox is a fellow at the Student Borrower Protection Center working on issues concerning Public Service Loan Forgiveness. She is currently a staff attorney in the DNA Unit of the Criminal Practice at The Legal Aid Society in New York City.