Federal Parent PLUS loans are among the most confusing student loans that New York bankruptcy debtors owe. They aren’t like other government student loans because they’re made to the parent (obviously) of the student rather than the student himself or herself. This can lead to difficulties when parents realize they must pay for debts they incurred on their kids behalves while their children may have wider repayment options for their own student loans. Here are twelve ways debtors can either get rid of or reduce their Parent PLUS loans that may be useful to them.
(1) Pay them down as quickly as practicable on a standard ten-year repayment plan. For higher income debtors, this is probably the best option, but it can be quite expensive on a monthly basis. The greatest advantage this strategy offers is that it is the quickest conventional way to repay the debt with the least amount of total interest possible.
(2) Consolidate the Parent PLUS loans to place them on an income-contingent repayment (ICR) plan. This is often easier said than done and requires a lot of paperwork, but debtors who consolidate their loans and sign up for this plan can see the unpaid balances on their Parent PLUS loans forgiven in 25 years. In many cases it will be a shorter repayment period, but the plan can reduce monthly payments to make it easier for debtors to repay their loans. Any amount canceled will be taxable income for debtors.
(3) Aim for Public Service Loan Forgiveness (PSLF). Debtors who work for the government or a nonprofit organization can take similar steps to signing on to an ICR plan but have their loans forgiven after only ten years, and the balance won’t be taxed. The problem for debtors is that the first wave of PSLF debtors have not had much luck receiving the benefit: The government rejected 99 percent of applicants. Again, more care and paperwork are necessary.
(4) If the parent borrower dies, then the survivors can petition for loan forgiveness. Naturally, this isn’t a voluntary option.
(5) If the parent becomes totally and permanently disabled, he or she can apply for loan forgiveness. This counts only for the parent and not the child-student.
(6) If the child dies, the debtors can ask the government for loan forgiveness. This option in particular is often unavailable for private student loans, which is a reason to stick to federal loans.
(7) Even less commonly, if the loan is discharged in bankruptcy the government will respect it. (Can you really imagine the federal government violating a discharge order?) Note that this is the parent and not the child filing bankruptcy.
(8) The student withdrew from the program but the school didn’t refund the loan.
(9) The child’s school closed, triggering the rule allowing closed-school forgiveness. (This is a rare opportunity for students who don’t attend for-profit universities, but if it’s offered, take it without hesitation.)
(10) The school falsely certified the debtor for the loan.
(11) Someone stole the debtor’s identity.
(12) Although I remarked on the risks of private student loans, in a sense it is the opposite option debtors have to paying the loan in full or obtaining loan forgiveness: In some circumstances debtors can transfer the obligation to the child by refinancing their Parent PLUS loans through private lenders.
Many of these options are involuntary, not preferred, or very difficult to accomplish. Click to read more information on the specifics of using ICR, PSLF, or refinancing through a private lender to deal with Parent PLUS loans.
As with conventional student debtors, parents may be able to use bankruptcy to free up income to pay for their student loans even if they are not dischargeable. Chapter 13 bankruptcy can provide options as well. If you are experiencing financial problems, talking to an experienced New York bankruptcy lawyer can help you strategize your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.