Taking out federal parent PLUS loans is an increasingly common way for families to pay for college. But once the student graduates and loan payments kick in, the debt obligation can quickly start to impact other financial goals.

More than one-fifth of adults currently paying off federal or private student loans taken out for their children or grandchildren are retired, according to an analysis by the Urban Institute, a nonprofit research organization. That means adults may be spending hard-earned retirement savings on loan payments or grappling with a tighter budget — and more modest standard of living — than they expected. 

The financial strain student loans are taking on parents and students alike is not going unnoticed, and many policymakers agree the borrowing process is ripe for reform. Precisely which changes to the PLUS program will make the biggest impact on current and potential borrowers is where the debate lies. Here’s what you need to know about the student debt proposals that could affect parent PLUS borrowers, now and in the future.

Parent PLUS Loan Basics

Parents can take out federal PLUS loans on behalf of dependent undergraduate students who are in college at least half-time.

Unlike federal loans made to students, PLUS loans don’t have annual lending limits, so a parent can borrow up to the child’s cost of attendance each year (minus other financial aid). PLUS loans also require a credit check and have higher interest rates and fees than federal loans available to undergraduates.

Despite their higher comparative cost, PLUS loans make up a growing portion of total federal student loan debt, accounting for nearly $90 billion. From 2017 through 2018, parent PLUS loans accounted for almost a quarter of federal student loans made for undergraduates, compared to 14% in 2012 to 2013, according to the Urban Institute report.

What the current administration proposes

Congress is currently working toward reauthorization of the Higher Education Act of 1965, legislation that oversees federal financial aid programs and the rules schools must follow to participate in them.

Congress must reauthorize the bill every five years. Since that hasn’t occurred since 2008, it’s now overdue. But both the House Committee on Education and Labor and the Senate Health, Education, Labor and Pensions Committee have held hearings in preparation for reauthorization in the past few months.

In March 2019, the White House released a series of proposals that it believed should be included as part of the reauthorization process. The administration suggested imposing borrowing limits on parent PLUS loans and providing financial aid administrators with more training to discourage overborrowing. The proposal didn’t include a specific loan limit.

The White House also proposed streamlining income-driven repayment plans, which lower student loan borrowers’ monthly payments to a portion of their income. The current system includes multiple plans with different payment amounts and schedules; the administration proposed a single plan that limits monthly bills to 12.5% of discretionary income.

It’s not clear if the plan would include parent PLUS borrowers, who currently have just one income-driven repayment option: income-contingent repayment, which caps monthly bills at 20% of discretionary income or the amount you’d pay on a 12-year timeline, whichever is less. If parent PLUS borrowers have access to the proposed income-driven plan, struggling borrowers could have the opportunity to pay less per month.

Alternative proposals in discussion

Several candidates vying for the 2020 Democratic presidential nomination have released student debt-reduction plans that could affect parent PLUS borrowers.

They include:

• Sen. Kirsten Gillibrand: In February, Sen. Gillibrand tweeted that as president, she would “allow all students to refinance their loans at 4%.” She has also introduced the Federal Student Loan Refinancing Act to allow federal loan borrowers to refinance their loans to the same rate. Historically, federal student loan interest rates have reached as high as 6.8% for undergraduates and 8.5% for parent PLUS borrowers. Private companies, including banks and online lenders, currently allow eligible borrowers with student and parent PLUS loans to refinance to lower rates. But generally, borrowers must have good or excellent credit to qualify, and refinancing federal loans means losing access to income-driven repayment and forgiveness options. If the federal government refinanced loans, more borrowers could take advantage of potential savings.
• Sen. Bernie Sanders: As part of the most recent iteration of his proposed College for All Act, Sen. Sanders called for canceling all existing student loan debt, no matter the borrower’s income. A tax on the purchase and sale of stocks, bonds and derivatives would fund debt forgiveness; it would also fund tuition- and debt-free two- and four-year college.
• Sen. Elizabeth Warren: Sen. Warren has also proposed student debt cancellation for both private and federal loans according to income. Those with incomes under $100,000 per year would receive cancellation up to a maximum of $50,000, while those earning $100,000 to $250,000 would receive cancellation in tiers based on income. No forgiveness would be available to those earning over $250,000. The cancellation would be funded by a 2% yearly tax on those with wealth totaling $50 million or more.

What you can do now to get help

While parent PLUS loan reform may not go into effect right away, staying abreast of conversations around higher education policy ensures you’ll be able to make your voice heard.

Borrowers currently struggling to repay parent PLUS loans can get in touch with their student loan servicer — the company that collects student loan bills — to discuss repayment options. To access a lower payment based on your income, apply to consolidate your PLUS loans into a direct consolidation loan and sign up for the income-contingent repayment plan. You’ll get forgiveness on the balance remaining after 25 years of payments, but that amount will be taxed as income.

If you work for a nonprofit or for the government, you may also qualify for the Public Service Loan Forgiveness (PSLF) program, which offers tax-free federal loan forgiveness after 10 years of repayment. It has several specific requirements you must meet to be eligible, though. You can use the government’s PSLF Help Tool to determine if it’s an option for you.

Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.