Parent PLUS Loan Income-Contingent Repayment Loophole

By Mark Kantrowitz

Generally, Federal Parent PLUS loans are not eligible for the income-driven repayment plans, including income-contingent repayment (ICR), income-based repayment (IBR), pay-as-you-earn repayment (PAYER) and revised-pay-as-you-earn repayment (REPAYER). Only federal student loans, such as the Federal Stafford Loan and the Federal Grad PLUS loan, are eligible for these repayment plans.

Consequently, Federal Parent PLUS loans are not eligible for public service loan forgiveness. Although there is nothing in the Higher Education Act of 1965 that prevents a Federal Parent PLUS loan from qualifying for public service loan forgiveness, repaying the loan under standard repayment would leave no loan balance to forgive after 10 years in repayment while working a full-time public service job.

However, there is a loophole.

Although Federal Parent PLUS loans may not be repaid under any of the income-driven repayment plans, a Federal Direct Consolidation loan that repays a Federal Parent PLUS loan for a borrower who entered repayment on or after July 1, 2006 is eligible to repay the consolidation loan under the income-contingent repayment (ICR) plan, per the regulations at 34 CFR 685.208(a)(2)(iv)(D) and the Higher Education Act of 1965 at 20 USC 1087e(d)(1)(D).

This loophole, then, might leave a loan balance to be forgiven under the public service loan forgiveness program, depending on the amount of debt and income. Generally, annual income should be less than three-quarters of total debt for the borrower to earn some forgiveness under the income-contingent repayment plan and public service loan forgiveness.