Why Parent PLUS Loans Are Ineligible For Income-Driven Repayment Plans

Federal Parent PLUS loans are ineligible for income driven repayment plans, such as Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), Pay-As-You-Earn Repayment (PAYE), and the new Saving on a Valuable Education Repayment (SAVE) plans.

This has made Parent PLUS loans some of the most challenging student loans to repay for parents and families. They've even spawned Borrow and Die Student Loan Forgiveness strategies due to the nature of how they operate.

A group of Democratic lawmakers, including Sen. Elizabeth Warren and Sen. Bernie Sanders, want to change that and are urging the President and the Department of Education to expand relief to Parent PLUS Loan holders. They recently sent a letter to Education Secretary Miguel Cardona urging him to include Parent PLUS loans in programs like SAVE.

However, there are statutory limitations on Parent PLUS Loans that only Congress can address. 

Repayment Plans Available To Parent PLUS Loans

Borrowers of Federal Parent PLUS loans are eligible for Standard Repayment, Graduated Repayment, and Extended Repayment, but not income-driven repayment plans. 

If a Parent PLUS loan is included in a Federal Direct Consolidation Loan made on or after July 1, 2006, the consolidation loan is eligible for Income-Contingent Repayment (ICR), but not any of the other income-driven repayment plans. 

There is a loophole called double-consolidation which makes consolidation loans that include consolidation loans that include Parent PLUS loans eligible for any income-driven repayment plan, but this loophole will end on July 1, 2025. 

While some members of Congress wrote a letter on February 15, 2024 that urges the Biden Administration to make Parent PLUS loan borrowers eligible for the SAVE repayment plan, it is Congress who passed legislation that blocks the U.S. Department of Education from offering income-driven repayment plans for Parent PLUS loans. 

This legislation constrains what the U.S. Department of Education can do when issuing regulations for the new SAVE plan.

Statutory Limitations

The Higher Education Act of 1965 prevents Parent PLUS loans from qualifying for income-driven repayment plans based on ICR and IBR. [20 USC 1087e(d)(1)(D) and (E)]

Paragraph D blocks Parent PLUS loans from being repaid under ICR:

“(D) an income contingent repayment plan, with varying annual repayment amounts based on the income of the borrower, paid over an extended period of time prescribed by the Secretary, not to exceed 25 years, except that the plan described in this subparagraph shall not be available to the borrower of a Federal Direct PLUS loan made on behalf of a dependent student; and”

Paragraph E blocks Parent PLUS loans from being repaid under IBR:

“(E) beginning on July 1, 2009, an income-based repayment plan that enables borrowers who have a partial financial hardship to make a lower monthly payment in accordance with section 1098e of this title, except that the plan described in this subparagraph shall not be available to the borrower of a Federal Direct PLUS Loan made on behalf of a dependent student or a Federal Direct Consolidation Loan, if the proceeds of such loan were used to discharge the liability on such Federal Direct PLUS Loan or a loan under section 1078–2 of this title made on behalf of a dependent student.”

Paragraph D was amended by the College Cost Reduction and Access Act of 2007 to make clear that Parent PLUS loan borrowers are ineligible for ICR. [P.L. 110-84]

Paragraph E was added by the Higher Education Opportunity Act of 2008 to exclude Parent PLUS loans and consolidation loans that repaid Parent PLUS loans from IBR. [P.L. 110-315]

There is also language in the general provisions section of the Higher Education Act of 1965 that defines the terms “excepted PLUS loan” and “excepted consolidation loan.” [20 USC 1098e]

The rest of the statutory language in this section of the Higher Education Act of 1965 repeatedly has an exclusion “other than an excepted PLUS loan or excepted consolidation loan” that prevents Parent PLUS loans and consolidation loans that repaid Parent PLUS loans from qualifying for IBR. 

Note that the statutory language at 20 USC 1087e(d)(1)(E) not only blocks Parent PLUS loans from qualifying for IBR, but also consolidation loans that include Parent PLUS loans. In contrast, 20 USC 1087e(d)(1)(D) does not include similar language for consolidation loans, which is how Parent PLUS loans become eligible for ICR if the Parent PLUS loans are included in a consolidation loan. 

What About The SAVE Plan?

The SAVE repayment plan (and previously, the REPAYE repayment plan) is based on the broad regulatory authority under ICR at 20 USC 1087e(e):

"The Secretary shall establish procedures for determining the borrower’s repayment obligation on that loan for such year, and such other procedures as are necessary to implement effectively income contingent repayment. ... 

Income contingent repayment schedules shall be established by regulations promulgated by the Secretary and shall require payments that vary in relation to the appropriate portion of the annual income of the borrower (and the borrower’s spouse, if applicable) as determined by the Secretary. ... 

The Secretary may promulgate regulations limiting the amount of interest that may be capitalized on such loan, and the timing of any such capitalization. ... 

The Secretary shall establish procedures under which a borrower of a loan made under this part who chooses or is required to repay such loan pursuant to income contingent repayment is notified of the terms and conditions of such plan, including notification of such borrower, that if a borrower considers that special circumstances, such as a loss of employment by the borrower or the borrower’s spouse, warrant an adjustment in the borrower’s loan repayment, the borrower may contact the Secretary, who shall determine whether such adjustment is appropriate, in accordance with criteria established by the Secretary."

So, the U.S. Department of Education could have issued regulations that make any federal education loan that is eligible for ICR, including a consolidation loan that repaid a Parent PLUS loan, eligible for the SAVE repayment plan. 

The U.S. Department of Education did not issue such regulations for several reasons as explained in the preamble to the final regulations published in the Federal Register on July 10, 2023 at 88 FR 43835-43836, in the section labeled “Borrower Eligibility for IDR Plans.” Instead, the regulations at 34 CFR 685.209(b) explicitly exclude Parent PLUS loans and consolidation loans that repaid Parent PLUS loans from the definition of “eligible loan.”

In summarizing the public comments urging them to make Parent PLUS loans eligible for income-driven repayment plans, the U.S. Department of Education wrote (excerpted):

“Many commenters expressed concern that we continued the existing exclusion of parent PLUS borrowers from the REPAYE plan. These commenters argued that parent PLUS borrowers struggle with repayment just as student borrowers do, and that including parents in these regulations would be a welcome relief.”

The U.S. Department of Education responded with an explanation of their reasoning (excerpted):

“While we understand that some parent PLUS borrowers may struggle to repay their debts, parent PLUS loans and Direct Consolidation loans that repaid a parent PLUS loan will not be eligible for REPAYE under these final regulations. The HEA has long distinguished between parent PLUS loans and loans made to students. In fact, section 455(d)(1)(D) and (E) of the HEA prohibit the repayment of parent PLUS loans through either ICR or IBR plans.

Following changes made to the HEA by the Higher Education Reconciliation Act of 2005, the Department determined that a Direct Consolidation Loan that repaid a parent PLUS loan first disbursed on or after July 1, 2006, could be eligible for ICR. The determination was partly due to data limitations that made it difficult to track the loans underlying a consolidation loan, as well as recognition of the fact that a Direct Consolidation Loan is a new loan. 

In granting access to ICR, the Department balanced our goal of allowing the lowest-income borrowers who took out loans for their dependents to have a path to low or $0 payments without making benefits so generous that the program would fail to acknowledge the foundational differences established by Congress between a parent who borrows for a student's education and a student who borrows for their own education. 

The income-driven repayment plans provide a safety net for student borrowers by allowing them to repay their loans as a share of their earnings over a number of years. Many Parent PLUS borrowers are more likely to have a clear picture of whether their loan is affordable when they borrow because they are older than student borrowers, on average, and their long-term earnings trajectory is both more known due to increased time in the labor force and more likely to be stable compared to a recent graduate starting their career. Further, because parent PLUS borrowers do not directly benefit from the educational attainment of the degree or credential achieved, the parent PLUS loan will not facilitate investments that increase the parent's own earnings. The parent's payment amounts are not likely to change significantly over the repayment period for the IDR plan. Moreover, parents can take out loans at any age, and some parent PLUS borrowers may be more likely to retire during the repayment period. 

Based on Department administrative data, the estimated median age of a parent PLUS borrower is 56, and the estimated 75th percentile age is 62. As such, the link to a 12-year amortization calculation in ICR reflects a time period during which these borrowers are more likely to still be working.”

The U.S. Department of Education also discussed their reasoning in eliminating the double-consolidation loophole:

“The Department is taking some additional steps in this final rule to affirm our position about the treatment of parent PLUS loans or Direct consolidation loans that repaid a parent PLUS loan being only eligible for the ICR plan. 

In the past, limitations in Department data may have enabled a parent PLUS loan that was consolidated and then re-consolidated to enroll in any IDR plan, despite the Department's position that such loans are only eligible for the ICR plan. 

The Department will not adopt this clarification for borrowers in this situation currently on an IDR plan because we do not think it would be appropriate to take such a benefit away. 

At the same time, the Department is aware that a number of borrowers have consolidated or are in the process of consolidating in response to recent administrative actions, including the limited PSLF waiver and the one-time payment count adjustment. Because some of these borrowers may be including parent PLUS loans in those consolidations without understanding that they would need to exclude that loan type to avoid complicating their future IDR eligibility, we will be applying this clarification for any Direct Consolidation loan made on or after July 1, 2025.”

The U.S. Department of Education repeated their discussion of Parent PLUS loans and income-driven repayment in the section labeled “Treatment of Parent PLUS Borrowers” on page 88 FR 43847.

“The Department disagrees with the suggestion that Parent PLUS loans should be eligible for this plan on the basis that the student for whom the loan was obtained was an undergraduate student. As discussed elsewhere in this preamble, the HEA prohibits parent PLUS loans from being repaid under any IDR plan. We decline to allow a Direct Consolidation Loan that repaid a parent PLUS loan to access REPAYE for reasons also discussed earlier in this preamble. The Department understands that the phrasing of § 685.209(f)(1)(ii) in the IDR NPRM may have created confusion that generated comments like the one discussed here because it only discussed payments on loans obtained for undergraduate study. We have clarified the regulation to make it clear that the 5 percent of discretionary income standard will be available only on loans obtained for the borrower's own undergraduate study.”

In the section about Alternatives Considered on page 88 FR 43896, the U.S. Department of Education said that it had considered allowing borrowers with a consolidation loan that repaid a Parent PLUS loan to use the REPAYE repayment plan, but dismissed it in part because of the potential for moral hazard.

“The Department also considered whether to permit borrowers with a consolidation loan that repaid a Parent PLUS loan to access REPAYE. However, we do not believe that extending benefits to these borrowers would accomplish our goal of focusing on the loans at the greatest risk of delinquency and default. Moreover, we are concerned that extending such benefits could create a high risk of moral hazard for borrowers who are close to retirement age. Instead, we think broader reforms of the Parent PLUS loan program would be a better solution.”

What About Alternative Repayment Plans?

The Higher Education Act of 1965 provides the U.S. Department of Education to create alternative repayment plans, but only on a case-by-case basis. [20 USC 1087e(d)(4)]

(4) Alternative repayment plans

The Secretary may provide, on a case by case basis, an alternative repayment plan to a borrower of a loan made under this part who demonstrates to the satisfaction of the Secretary that the terms and conditions of the repayment plans available under paragraph (1) are not adequate to accommodate the borrower’s exceptional circumstances. In designing such alternative repayment plans, the Secretary shall ensure that such plans do not exceed the cost to the Federal Government, as determined on the basis of the present value of future payments by such borrowers, of loans made using the plans available under paragraph (1).

This could be used to provide Parent PLUS loan borrowers with access to an income-driven repayment plan like the SAVE plan, but only on a case-by-case basis, only if ICR is inadequate and only in exceptional circumstances. 

Given that the main difference between the ICR and SAVE repayment plans are in the amount of the monthly payment and in the time until the remaining balance is forgiven, it is unclear what circumstances would justify providing a Parent PLUS loan borrower with access to the SAVE plan. 

Why Did Congress Make Parent PLUS Loans Ineligible For Income-Driven Repayment Plans?

The purpose of income-driven repayment plans is to provide a safety net in case the student does not graduate or their income after graduation is insufficient to repay their student loan debt. 

There is significant uncertainty about the outcomes of a student’s education at the time they borrow money to pay for college.

There is very little uncertainty about a parent’s future ability to repay a Parent PLUS loan at the time they borrow it to pay for a child’s college education. The federal government expects that parents will consider their present ability to repay the Parent PLUS loans at the time they borrow them to pay for their child’s college education. 

Congress also has a concern about the potential for moral hazard, since Parent PLUS loans have no aggregate student loan borrowing limits, and the annual limits are capped at just the college’s cost of attendance. 

On the other hand, the eligibility restrictions are based on just whether the borrower has an adverse credit history. They do not consider factors relating to the borrower’s ability to repay the debt, such as credit scores, debt-to-income ratios and the duration of employment with the borrower’s current employer. 

Data from the National Postsecondary Student Aid Study (NPSAS) suggests that some Parent PLUS loan borrowers do not have sufficient income to repay the Parent PLUS loans at the time the loans were borrowed. Anecdotal evidence suggests that some parents borrow Parent PLUS loans with the expectation that the student will repay the debt, not the parents. This is especially prevalent at HBCUs. 

Nevertheless, Parent PLUS loans are lower risk to the federal government than federal student loans for undergraduate students. The default rates on Parent PLUS loans are less than half the default rates on federal student loans for undergraduate students. For example, the Education Appendix to the President’s FY2024 Budget shows a default rate of 33.23% on undergraduate federal student loans, compared with a default rate of 14.89% on Parent PLUS loans. The default rates for federal graduate student loans are similar to the default rates for Parent PLUS loans. 

Federal Parent PLUS loans have interest rates that are 2.55% percentage points higher than the interest rates on federal student loans for undergraduate students, and loan fees that are four times the fees of undergraduate student loans. Federal Parent PLUS loans are also unsubsidized, meaning that interest accrues during the in-school and grace periods as well as during other periods of authorized deferment and forbearance. 

This makes Parent PLUS loans more profitable to the federal government than other types of federal education loans. 

Congress did provide a loophole that enables consolidation loans that repaid a Parent PLUS loan on or after July 1, 2006 to qualify for ICR. ICR is the least generous of the income-driven repayment plans, with a monthly loan payment that is more than double the payment under the PAYE repayment plan and quadruple the payment for undergraduate debt under the SAVE repayment plan. The remaining debt is forgiven after 25 years of payments.

Nevertheless, ICR does provide a safety net for Parent PLUS loan borrowers who are in difficult financial circumstances, especially for parents who earn less than the poverty line. Parent PLUS loans are also eligible for Public Service Loan Forgiveness if they are consolidated and on the ICR repayment plan.