Hi. I am not a financial aid professional (as you will probably be able to tell by my post!) But I have helped a lot of people with preparing their FAFSA and applying for scholarships. I ran into a situation I haven’t come across before so I wondered if anyone could help. There is a family I am “working” with (voluntarily) that has an EFC of $15,000. They wish to send their child to SUNY Binghampton but would have to take out $80,000 in loans. ($31,000 borrowed by the student, $50,000 borrowed by them.) I told them I thought this was way to much to borrow. But here’s the thing. There is no two year school within commuting distance of their house. Right now, they have the income to pay back their parent plus loans. But in the next three years their income may significantly drop due to a retirement. Is it true that Parent Plus loans can be put into the Income Contingent Repayment program? Also, one of the parents has their own student loan in the IBR program right now. They asked me if it is possible to consolidate their IBR loan with the Parent Plus loans they would borrow and if the ICR repayment would be based off that? Their line of thinking is that when their income drops, their required payment would drop and it would still be affordable. I don’t know their income but my estimate is its around $100,000 now and would be around $60,000 after retirement. I have never heard of a situation like this and I would say this is just to much debt. But they seemed determined. Is this even possible? And if it is possible, should people with low incomes take high parent plus loans because their payment would be income contingent? If a person earned $40,000 (I just picked a number) what’s the difference in borrowing $40,000 or $140,000 if they can use ICR?
This isn’t your question but I’d be hard pressed to come up with good reasons to take out 80K in loans to attend Binghamton (and I’m a huge B fan).
Lots of stuff could happen between now and the planned retirement. This seems like a high risk/low reward situation.
Surely there are other colleges out there?
From the Federal Student Aid website: Although PLUS loans made to parents can’t be repaid under any of the income-driven repayment plans (including the ICR Plan), parent borrowers may consolidate their Direct PLUS Loans or Federal PLUS Loans into a Direct Consolidation Loan and then repay the new consolidation loan under the ICR Plan (though not under any other income-driven plan).
Here is relevant information: https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven#eligible-loans. The parent should contact his servicer with questions related to his specific situation.
Does this family live in NYS? If not, they should look at schools in their home state. If they’re NYS residents, they may have to reassess what they consider commuting distance. I started at a SUNY cc many years ago and my commute was about an hour each way (in good weather). I packed a lunch and stayed on campus all day.
Does this student have more affordable options?
Do plus loans have income based repayment?
Graduate PLUS loans qualify for all the income driven repayment plans in the same way sub and unsub loans qualify (there are numerous rules about FFEL, Direct, when borrowed, etc - but the rules are the same for sub, unsub and Grad PLUS). It’s just Parent PLUS that has different rules.
The student may need to stay home and do online classes through one of the community (or state) colleges in the state and take math, English and other basic requirements. I am not a fan of online classes, especially for freshman. But to borrow that amount of money when the parents are still paying their OWN student loans back is not wise.
If they could shave a year off with taking state school classes from home, that would save a substantial amount. I would be advising them to find other options.
@kelsmom So, you’re saying that Parent Plus loan payments will NOT be reduced if the parents’ income drops?
If that’s the case, then @redeye41 needs to tell these folks that there’s a big hole in their plan. They think their payments will drop once they retire and are earning less. If the payments won’t decrease, they need to know that now.
@redeye41 Kelsmom is a Financial Aid Director, so she knows what she’s talking about.
https://studentloanhero.com/featured/easy-options-get-parent-plus-loan-repayment-under-control/#
I don’t think a parent plus loan can be consolidated with a parent’s own loans, so the parents would have two loan programs to deal with if the parent is still paying of his own student loans.
The Parent PLUS loans can be consolidated into the parent’s student loans. If they are, though, ICR would be the only income driven plan allowed for that consolidation loan. I just answered the question. In terms of whether or not it’s a good idea, I couldn’t say. This may be good, may not be good … it is important to review the loans to see if it would be beneficial. I strongly encourage the parents to talk to their student loan servicer about the situation. I never answer a student’s question about what would be best without reviewing the loans.
@mom2collegekids, ICR is an income driven repayment plan, so the possibility exists to consolidate the Parent PLUS loans into the parent’s student loans and repay with ICR. This would possibly allow a lower payment if the income drops - but that again is dependent on the individual situation. In a nutshell:
Income-Contingent Repayment Plan
-All Direct Loan borrowers
-Can consolidate FFEL and Perkins Loans into a Direct Consolidation Loan to qualify
-Parent PLUS loans must be consolidated into a Direct Consolidation Loan to qualify
-No partial financial hardship necessary
-Monthly payment is the lesser of
-20% of discretionary income, in this case defined as the amount of AGI above 100% of the poverty guideline;
-12-year repayment amount x income percentage factor
-If you’re married, your spouse’s income or loan debt will be considered only if you file a joint tax return or you choose to repay your Direct Loans jointly with your spouse
If parents have a Parent Plus loan but the parents do NOT have their own student loans from their own college days, can they use IBR?
Did the OP indicate whether these parents have their own student loans from their old college days??
Does this idea bother anybody else? The idea of borrowing money you know you cannot repay? I understand that their options are limited.
From the OP:
That was exactly what I was thinking.
@mom2collegekids: To answer your question about whether or not the parent can repay using ICR if they don’t have their own undergrad loans … yes … the parent would have to consolidate the Parent PLUS loan into a Direct Consolidation loan, though. It seems strange, but it’s how it works.
Is the retirement date optional? If it will make college unaffordable, maybe the parents should continue working a few more years. My husband is delaying his retirement until both our children are through college. If they have to retire, finding a job somewhere else is preferable to taking unaffordable loans.
Sorry I haven’t responded in a while. Yes, this situation bothers me, too and one reason I thought I’d ask is because it doesn’t seem like it should be possible-- my husband and I are cutting way back to pay for college and we can’t retire early. To austimshauri’s question yes this family could put off retirement but they don’t want to, and it’s looking like they don’t have to with ICR. I know these programs are needed but I shake my head because it doesn’t seem fair. I mean, why not go to the most expensive school if your parent with a low income can borrow and pay close to nothing back? I guess in our case it’s that whole “integrity thing”. My daughter wanted to go to Northwestern but we told her it wasn’t possible. But now it seems we’ll be paying for our daughter’s education as well as part of the neighbors through taxes. To the people that asked is this a NY student, yes they are. The closest school to commute to is an hour and fifteen minutes away and in the winter it can be a brutal drive.
So someone with very low income, but good credit, could take out $250k in Plus Loans, and then consolidate as you described, and then when the student graduates, have the payment super-reduced based on IBR? and then after X number of years, the loan is cancelled or what??
If so, then this could be horribly abused. Low income parent could sign for all the Plus, child agrees to pay them back, child graduates with very good paying job/career, Parent consolidates and child makes the low IBR payments for X years and then loan is cancelled?
What would be the minimum IBR payment on a $200k loan
The size of the loan doesn’t matter, it’s 20% of the parents income that is above the minimum standard of living for that family size. The loan could be $20k or $200k, the payment is based on income. When the charge-off comes, it is taxable.
paying taxes on free money is still less than the amount. And it would be at the low income parent’s rate, right?