Parents are struggling to pay off the loans they got to help their children with college costs. According to the Brookings Institution, some 3.4 million Parent PLUS borrowers owe $87 billion. The picture isn’t pretty. The average Parent Plus balance is about $25,600 — and rising.
So, what’s the solution for parents?
Examine options: Parent PLUS Loans are eligible for Income-Contingent Repayment (ICR), which allows parents to adjust their monthly payments to a percentage of their taxable income for 25 years, with the unpaid balance forgiven at the end of the repayment term, says Jay Fleischman, an attorney with Shaev & Fleischman in Manhattan.
Then there’s Income Sensitive Repayment (ISR), which is available only for federal student loans made under the Federal Family Education Loan Program. It allows the borrower to choose a monthly loan payment of between 4 percent and 25 percent of gross monthly income for up to 5 years. The payment amount chosen must be enough to cover the interest accruing every month on the loan.
“For my clients who qualify for ISR, it’s a great way to minimize payments until income drops after retirement," Fleischman says. Once the borrower stops working and income goes down, they may be able to consolidate their loans and keep monthly payments low under the ICR plan, he says.
Refinance: “Try to refinance and get a lower interest rate. You’ll need a high credit score and have a steady income and history of employment,” says Joshua Zimmelman, president of Westwood Tax & Consulting in Rockville Centre. “You might even be able to refinance your loan into your child’s name, meaning your child is responsible for paying back the loan instead of you.”