Federal Parent PLUS loans can qualify for Public Service Loan Forgiveness (PSLF), but it is a little complicated.
Parent PLUS loans do not qualify for the limited PSLF Waiver.
How Parent PLUS Loans Can Qualify for PSLF
Parent PLUS loans are not directly eligible for income-driven repayment plans, which are necessary to have some debt remaining to forgive after 120 qualifying payments.
However, if the Parent PLUS loans entered repayment since July 1, 2006 and are included in a Federal Direct Consolidation Loan, the consolidation loan is eligible for Income-Contingent Repayment (ICR), the oldest income-driven repayment plan. A Federal Direct Consolidation Loan that repaid a Parent PLUS loan is not eligible for the other income-driven repayment plans.
This provides a method for forgiveness of Parent PLUS loans through PSLF by consolidating the Parent PLUS loans and choosing an income-contingent repayment plan for the consolidation loan.
To count toward forgiveness, 120 qualifying payments must be made while the loans are repaid in the Direct Loan program, in a qualifying repayment plan (income-driven repayment or standard repayment), while the borrower works full-time in a qualifying public service job.
Temporary Expanded Public Service Loan Forgiveness (TEPSLF) allows payments made in graduated repayment or extended repayment to count, if the last year of payments are at least as much as they would have been in an income-driven repayment plan.)
All of these conditions must be satisfied simultaneously. Payments made prior to consolidation do not count, as consolidation resets the payment clock. Public service employment prior to the borrower entering repayment or prior to the loans being in the Direct Loan program does not count.
The Temporary PSLF Waiver Does Not Apply
The U.S. Department of Education is implementing a temporary PSLF waiver through October 31, 2022 which allows payments on FFELP and Perkins loans prior to consolidation to count, as well as payments in any repayment plan, late payments and partial payments to count. This waiver, however, is not available to Parent PLUS loans.
What If You Are Retired or Do Not Work in a Public Service Job?
To count toward public service loan forgiveness, the qualifying payments must be made while the borrower is working full-time in a qualifying public service job.
Volunteer work does not count, except for AmeriCorps and the Peace Corps.
Payments made while a borrower is unemployed or retired do not count toward PSLF, but they do count toward the forgiveness after 20 or 25 years in an income-driven repayment plan.
The payment pause and interest waiver counts toward PSLF as though the payments were made, but the borrower must still have been employed full-time in a qualifying public service job. That requirement was not waived.
There are two strategies pursued by people who retire with federal student loan debt. One is to pay off the debt in full upon retirement. The other is to use an income-driven repayment plan or extended repayment plan (whichever yields the lowest monthly loan payment) to reduce the impact of the loan payments on cash flow in retirement. Income-driven repayment plans are based on adjusted gross income (AGI), so depending on whether the retirement plan distributions are included in AGI, this can reduce the monthly loan payment.
Stretching out the repayment term for borrowers who are retired has another somewhat morbid benefit. Federal education loans are cancelled upon the death of the borrower and not charged against the borrower\’s estate. Parent PLUS loans can also be discharged upon the death of the student upon whose behalf the loans were borrowed. A longer repayment term increases the likelihood that the loans will outlive you. Currently, the death discharge is tax-free through December 31, 2025; this provision is likely to be extended or made permanent.