The federal government offers Parent PLUS loans to parents of college students to help pay for the students’ educations, but they are notoriously difficult for struggling parent-debtors to deal with because they have high interest rates and aren’t protected by as many of the student-loan innovations that keep regular direct-loan borrowers afloat, e.g. Income-Based Repayment (IBR) or Revised Pay-As-You-Earn (REPAYE). As a result, debtors with Parent PLUS loans are often stuck with large student-loan bills that are difficult to discharge in New York bankruptcy. I recently wrote about one Massachusetts debtor who owed $220,000 in Parent PLUS loans, who faced that exact issue. Fortunately, there are some options for debtors struggling with Parent PLUS loans.
(1) Use the Income-Contingent Repayment (ICR) repayment plan. ICR is the older sibling to IBR. It allows debtors to pay the lesser of either 20 percent of their discretionary incomes or what they would pay on an income-adjusted 12-year repayment plan. Loans are forgiven after 25 years, and the forgiven amount will be taxable income. Debtors working outside the private sector can use ICR while seeking the 10-year Public Service Loan Forgiveness (PSLF) option. The catch to ICR is that Parent PLUS loan debtors will need to consolidate their loans first.
(2) Refinance the loans through a private lender. Debtors are usually told to steer clear of private student loans in all contexts. Such loans almost never have the diversity of repayment options that the federal government offers and usually require co-signers. However, with Parent PLUS loans, the situation is somewhat different. Because they come with fewer alternative repayment options, debtors won’t lose out much if they try to move their loans away from the federal government. Moreover, private lenders will offer lower interest rates to parent borrowers than the government does because the government sets student-loan interest rates by statute and not by direct market conditions. Debtors with steady incomes might be able to reduce monthly payments and save money in the long run by refinancing.
(3) Take advantage of loan deferment or forbearance. These options are the old standbys for federal student loan debtors, but they are still available for debtors who don’t want to refinance or consolidate their loans.
For most Parent PLUS debtors, chapter 7 bankruptcy won’t help much, but chapter 13 can offer some aid to student-loan debtors. If you have substantial Parent PLUS loan debt, then talking to an experienced New York bankruptcy lawyer can help.
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 law firm Bruce Weiner for a free initial consultation.
