When going to school for my undergraduate degree, I was denied any federal aid or grants because of my parents’ income being too high. However, they were (and still are) in an extreme amount of debt and were extremely close to losing their house and declaring bankruptcy.
Because of this, I was forced to take out the maximum federal loans I could, but this didn’t even come close to paying for my schooling. My parents were forced to take out PLUS loans to cover the rest and as a result have about $90,000 in PLUS loans.
They are unable to make the payments for these loans along with their other debts. I know income-based plans are an option, but since they still have a higher income, I am afraid 20% of that will still be too much for them to pay.
They spoke to someone about getting their payments lowered, but in that case they would be paying on them for 30 years and would be in their 90s by the time they would be paid off. Are there any options for them in this case? If they did declare bankruptcy, would these loans be “forgiven”?
How can my parents, who have higher incomes but massive amounts of debt, get out of their PLUS loan debt?
Thank you for asking me for help.
There is certainly no magic wand in this situation. But there are options.
It is true that your parents are eligible for the Income Contingent Repayment (ICR) program. This program has monthly payments that are higher than other income driven repayment programs.
The ICR program runs a maximum of 25 years but when your parents retire, or their income changes, they can ask to have their payment adjusted.
Depending on how close they are to retirement now, one option might be to put the loans forbearance if they are scheduled to retire in the next few years. While this would increase the overall balance, it would help them to make it over the hurdle to lower income and a lower payment.
Of course another option would be fore them to get going on the ICR now and you can help them make the payment if that’s an option.
Not only is the ICR option a higher payment but it extends for a longer period of time than the student income Based Repayment (IBR) plan.
To be eligible for the ICR option, your parents would have to consolidate their Parent PLUS loans into a new Direct Loan. There is no fee for doing this.
For more information on the ICR, click here.
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The loans could be potentially forgiven in bankruptcy if your parents could prove that even after the ICR program that the repayment created an undue hardship and they were just barely scraping by. Then of course there is also this guidance from the Department of Education.
One thing to consider as you explain this situation to others is the issue of anyone being “forced” to take out the loans. There can’t be any “force” involved when the other option was to not take them out and select a different path.
If there is anything your parents are a victim of here it is the terms and conditions they agreed to when they took out the loans and they are lucky these are federal loans with options rather than private student loans with no repayment alternatives.
The reality is that because of their financial situation they probably should consider filing bankruptcy, get the fresh start the law allows them, and get themselves in a position to do better moving forward.
With their other debt, even the ICR will create a difficult obstacle because the payment makes no allowance for other type of debt just because it is unaffordable. Their ICR payment will be based on 20 percent of their discretionary income which is defined as “the difference between your income and 100 percent of the poverty guideline for your family size and state of residence. The poverty guidelines are maintained by the U.S. Department of Health and Human Services and are available at www.aspe.hhs.gov/poverty.”