Federal Parent PLUS loans can qualify for Public Service Loan Forgiveness (PSLF), but they are a bit complicated.
Parent PLUS loans do not qualify for the limited PSLF exemption.
How Parent PLUS Loans Qualify for PSLF
Parent PLUS loans do not directly qualify for income-driven repayment plans, which are necessary for some remaining debt to be waived after 120 eligible payments.
However, if Parent PLUS loans have been in repayment since July 1, 2006 and are included in a direct federal consolidation loan, the consolidation loan qualifies for Emergency Repayment (ICR), which is the oldest income-driven repayment plan. The Federal Direct Consolidation Loan Repaying Parent PLUS Loan is not eligible for other income-driven repayment plans.
This provides a way to waive principal PLUS loans through the PSLF by consolidating principal PLUS loans and selecting an income-related repayment plan for the consolidation loan.
To count on the exemption, 120 eligible payments must be made while repaying loans in the Direct Loan Program, in the eligible repayment plan (income-based repayment or standard repayment), while the borrower is employed full-time in an eligible public service job.
Temporary Extended Public Service Loan Forgiveness (TEPSLF) allows payments to be counted in a graduated or extended repayment, if the last year of payments is at least as much as they were in an income-paid repayment plan.)
All of these conditions must be met simultaneously. Payments made before consolidation are not counted, because consolidation resets the payment hour. Public service employment is not counted before the borrower enters repayment or before loans are in the direct loan program.
PSLF Temporary Waiver does not apply
The US Department of Education is implementing a temporary PSLF exemption through October 31, 2022 that allows FFELP and Perkins loan payments to be made prior to consolidation, as well as payments in any payment plan, late payments and partial payments to count. This waiver, however, is not available for Parent PLUS loans.
What if you are retired or not working in a public job?
To count on Public Service Loan Forgiveness, eligible payments must be made while the borrower is employed full-time in an eligible public service job.
Volunteering does not count, except for AmeriCorps and Peace Corps.
Payments made when the borrower is unemployed or retired do not count toward the PSLF, but they do count toward a 20 or 25-year tolerance in an income-driven repayment plan.
The payment pause and interest waiver period counts in favor of the PSLF as if the payments were made, but the borrower must have been employed full-time in an eligible public service job. This requirement is not waived.
There are two strategies that people who retire with federal student loan debt follow. One is to pay off the debt in full at retirement. The other is to use an income-driven payment plan or an extended payment plan (whichever produces the lowest monthly loan payment) to reduce the impact of loan payments on cash flow in retirement. Income-driven repayment plans are based on Adjusted Gross Income (AGI), so depending on whether retirement plan distributions are included in the AGI, this can reduce your monthly loan payment.
Extending the repayment period for retired borrowers has another somewhat satisfactory benefit. Federal education loans are canceled upon the death of the borrower and are not collected from the borrower’s property. Parent PLUS loans may also be forgiven upon the death of the student on whose behalf the loans were borrowed. A longer repayment period increases the likelihood that the loans will last longer than you. Currently, death discharge is tax-exempt until December 31, 2025; This provision could potentially be extended or made permanent.