Apply For Additional Direct Unsubsidized Loans
If obtaining a Parent PLUS loan isnt an option, but your student still needs extra money for college, they may be able to qualify for additional federal student loans.
Dependent students whose parents dont qualify for a Parent PLUS Loan may qualify for additional unsubsidized Federal Direct Stafford Loans, the same limits as are available to independent students.
While you arent the borrower, your child is still able to receive the additional funds that they need to pay for their education.
Refinancing Your Parent Plus Loan
Refinancing your loan is the process of transferring your loan debt to your student child, making them legally responsible for paying off the student loan debt. Of course, youll have to have an honest conversation with your child and come up with a good plan.
Your child will have to be the one to apply for the student loan refinance. Also, your child will have to get approval from the loan servicer to carry the loan burden from you.
When you refinance your loan, it will become a private student loan. Its a great idea because it offers lower payments and interest rates. But the low rates can increase with time due to its variability. Also, you have to remember that your child will not qualify for any federal loan benefit programs. So, your child will not be eligible for PSLF, deferments, forbearance, or any of the PLUS Loan forgiveness and discharges explained above.
Help Your Student Reduce Costs Or Find Other Funding
Student loans are a popular ways to pay for college, but there are other ways to bring down costs. Here are some ways to cut costs if youre not able to find any student loans for parents with bad credit.
One of the things that parents can do to help their children pay for college or save money is to let them live at home while taking classes. Room and board at school can be very expensive, so if a child is attending a school near home, living at home can save thousands of dollars each year.
The student can still get involved with campus life by joining clubs, attending sporting events, and hanging out around campus, but saving on room and board can save parents from having to get Parent PLUS Loans in the first place.
Parents can also work to help their children find other sources of funding for school. There are thousands of scholarships and grants that students can apply for. Parents should keep an eye out for these opportunities. Many local community organizations offer small scholarships to local students. Even if the award is a few hundred dollars, every bit helps.
Anything that parents can do to help their children make money to reduce college costs can help, even if they arent able to pay for tuition using a Parent PLUS Loan.
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Does A Parents Bankruptcy Affect Eligibility For Student Financial Aid
Bankruptcy is a complicated issue that affects many areas of ones life, but in general, filing for bankruptcy doesnt interfere with eligibility to receive federal aid.
It can, however, affect eligibility for some student loans and loan programs, but it might not be as bad as you think.
A green light for financial aid and federal loans
A parents bankruptcy has no direct impact on their childs eligibility for federal student aid. Even if their parents have a bankruptcy , a child remains eligible for federal student loans. An example is the Stafford loan which does not depend on the borrowers credit history in any way.
The Bankruptcy Reform Act of 1994 amended the US Bankruptcy Code to make sure government student grants and loans couldnt be denied based solely on the students or borrowers filing of a bankruptcy. The only exception is the Federal PLUS loan.
PLUS loans not so much
Direct PLUS loans are federal loans that parents of dependent undergrad students can use to help pay for college. The U.S. Department of Education is the lender, and they conduct credit checks, so those with an adverse credit history are not eligible.
Adverse credit history can be defined as having had a bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment or default determination in the last 5 years, or current delinquency on any debt of 90 days or more. Parents remain ineligible for 5 years from the date of the bankruptcy discharge.
The good news
Double Consolidation For Parent Plus Loans
Parent PLUS loans arent eligible for income-driven repayment on their own. The lack of IDR plans during can put a wrench in your future financial plans. Especially, if youre planning a modest retirement in the near future.
Through a Direct Consolidation Loan, you can combine multiple Parent PLUS Loans. But a Direct Consolidation Loan only provides access to the income-contingent repayment plan which calculates monthly payments at 20% of your discretionary income.
Luckily, its possible to get this monthly payment even lower with the help of double consolidation. The double consolidation loophole offers parents the opportunity to access lower repayment options, which can be based on 10% to 15% of a parent borrowers discretionary income.
Double consolidation isnt a strategy youll see overtly offered by your loan servicer. But a double Direct Consolidation Loan process offers a pathway for Parent PLUS Loan holders to access more IDR options to ease the repayment burden of these loans.
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Parent Plus Student Loan Discharges
If you dont qualify for either of the Parent PLUS loan forgiveness options outlined above, you may still be able to wipe out that debt if you can find a way to qualify for one of the Discharge programs listed below.
Discharge programs work slightly different from Forgiveness programs, but do basically the same thing allow you to wipe out, eliminate, and completely forget about your student debt.
The issue with Discharge programs is that they tend to be much harder to qualify for than Forgiveness programs, requiring very specific eligibility conditions to bet met before you can qualify to have your loan eliminated.
For Parent PLUS Loans, youll want to look into the following Discharge options:
- The Total & Permanent Disability Discharge Program
- The Death Discharge Program
- Federal Student Loan Bankruptcy Discharges
- The Closed School Loan Discharge Program
- The Borrowers Defense Against Repayment Program
As I just mentioned, none of the above Discharge programs are easy to qualify for, but all of them do allow you to completely eliminate a Parent PLUS Loan, so lets go through the eligibility conditions required to qualify for each of these.
Danger : You Can Easily Borrow More Than You Need
When you apply for a Direct PLUS Loan for your child, the government will check your , but not your income or debt-to-income ratio. In fact, it does not even consider what other debts you have. The only negative thing it looks for is an adverse . Once you’re approved for the loan, the school sets the loan amount based on its cost of attendance. However, a schools cost of attendance is usually more than most students actually pay. This can lead to parents borrowing more than their child needs for college.
If you have other outstanding debt, such as a mortgage, you may find yourself in over your head when it comes time to repay the PLUS loan.
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Are Parent Plus Student Loans Eligible For Forgiveness
Q. I have a Parent PLUS loan. I recently retired, so is this loan eligible for loan forgiveness? And if I pass away, does it go away?
Tired of debt
A. Student loans are an enormous burden on millions of Americans, and the loans that parents take for their children are part of that.
Getting rid of student loans isnt easy.
Generally, parent plus loans can be forgiven or put on an income-based repayment plan if a parent is struggling to pay this type of debt, said Karra Kingston, a bankruptcy attorney in Union City.
First, to qualify for an income-based repayment plan on the Parent Plus loan, the borrower must have entered repayment on or after July 1, 2006, she said.
To qualify under the income-based repayment plan, the monthly payment is based on 20% of the borrowers discretionary income, which is defined as the amount by which the borrowers adjusted gross income exceeds 100% of the poverty line, Kingston said. If you can qualify for this, the loan will be forgiven after 25 years of qualified on-time monthly payments.
You also may be able to qualify for student loan forgiveness under the Public Service Student Loan Forgiveness plan.
Parent PLUS loans are eligible to be forgiven if they are a federal loan and worked full-time in a qualifying public service job, Kingston said. Generally, the borrower would have to be on an income-based repayment plan for 10 years and this loan would be forgiven.
Good luck to you with your debt.
Email your questions to .
Bankruptcy Could Be A Problem
Even after your child has obtained everything he or she can with student loans and grants, you may still need to bridge the gap. This is best done with a federal Parent PLUS loan. Unfortunately, these are credit based, and as suchmay be beyond your reach.
You cannot have an “adverse credit history.” This means that you are more than 90 days delinquent on any debt , or in the past 5 years defaulted on a debt, obtained a bankruptcy discharge, foreclosure, repossession, tax lien,wage garnishment, or write-off of a federal student loan.
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Oct Stuck With Parent Plus Loans: The Same Discharge Problems Only More So
One of the things I regularly tell my clients is that bankruptcy is contrary to common sense, or to our expectations of the way the world works. At its root, bankruptcy is a breach of contract, allowing one to avoid obligations that exist under contract. Bankruptcy sometimes requires creditors who have received payment to give that money back. Bankruptcy can even sometimes reverse a sale or other transfer of property. And bankruptcy treats the obligations that most of us view as most sacredthose to family membersleast favorably.
There are reasons for all this, and within the larger bankruptcy scheme they each make sense . For example, the reason debts to family members are treated less favorably is twofoldto promote equal distribution of assets to all creditors, and the recognition that most of us would make every effort to repay those debts to family in any case.
Unfortunately, the way bankruptcy treats student loan debt is also at war with our instincts and our understanding of the way the world works. Like other student loans, federal Parent Plus loans are also not dischargeable in bankruptcy, and are not eligible for income based repayment programs.
It is not wonder that the extent of student loan debt may pose the next debt crisis. And Parent Plus loans are a big part of the problem. Attention must be paid to the way such loans are made, and to a fair way to discharge those loans when there is simply no way to pay.
Keeping The Car Outside Of Bankruptcy
The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act eliminated drive through car loan agreements for bankruptcies. Before the act, consumers and car lenders could continue with whatever agreement they wanted, ignoring the bankruptcy. While drive-throughs are now against bankruptcy rules, it still happens and courts rarely enforce it. When no intention to reaffirm, redeem or surrender the car is filed by the deadline, a car loan is dropped from the bankruptcy. In many cases, the car owner and lender continue to do business and always, and courts rarely enforce it. Of course, this only works for the car owner if theyre making payments on time.
Since this option is counter to bankruptcy law, its not necessarily something youd want to pursue, and it provides a lot less protection than going with one of the routes allowed by law.
Are There Guidelines For Plus Loan Borrowers
Section 428B of the Higher Education Act of 1965 provides guidelines for PLUS loan borrowers. This section states that borrowers may not have an adverse credit history, which is defined by regulations at 34 CFR 682.201 and 34 CFR 685.200 as including bankruptcy discharge during the five years preceding the date of the credit report.
A bankruptcy discharge during the previous five years likely precludes the parent from obtaining a PLUS loan for the child.
However, a Federal PLUS loan denial is not based solely on a bankruptcy discharge. Unlike some state sponsored loan programs that require borrowers to have no previous bankruptcies, the Department of Educations guidelines do not run afoul of bankruptcy anti-discrimination laws.
The existence of a bankruptcy discharge within five years can be overcome by other evidence of credit-worthiness. A parent borrower may also qualify for a PLUS loan with a credit worthy co-signor.
The mechanics of obtaining a PLUS loan with a history of bankruptcy also depends on the bankruptcy chapter of the debtor:
Denied A Parent Plus Loan
If you are found to have adverse credit history, you may still be able to borrow from the Parent PLUS Loan program. You have two options: submit a successful extenuating circumstances appeal for an exceptional circumstance, or reapply with a cosigner who does not have an adverse credit history.
If you want to appeal the decision, you must submit a request to appeal the decision and provide information regarding your denial decision. If successful, you may be required to completed loan counseling prior to receiving the Parent PLUS loan funds.
If you would like to apply with a cosigner who does not have adverse credit, the cosigner would need to complete an endorser application.
Now, if neither of these options works for you, your denial of a Parent PLUS Loan would actually make your dependent undergraduate student eligible for independent undergraduate student Stafford loan limits. Meaning, they will have access to additional loan funds they can borrow under their name to help pay their own college costs.
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Can I Include A Parent Plus Loan In A Chapter 13 Bankruptcy
- Posted on Oct 11, 2012
If you found my answer useful, please check it as “helpful” here on Avvo. Answers to questions on Avvo are for general informational purposes only. Proper preparation of a bankruptcy case involves many factors and variables, and may lead to a different answer than that given here when all the facts are taken into consideration. The fact that a general question was answered on Avvo does not establish an attorney-client relationship that only happens when both you and I sign a formal contract and a retainer is paid and collected.
- on Oct 11, 2012
Present law makes this result, as your attorney and my colleague has reported.Unless you can squeeze out some payments from your budget after the plan payment is made, you are stuck.Congress would have to change the law, currently unsecured creditors enjoy a preference to your paying back a student loan.If your plan is a 100% dividend return to unsecured creditors, any extra income you have can be used to pay student loans, or to anything else you want.
General legal advice is offered for educational purposes only. A consultation with a qualified attorney is required to determine specific legal advice as to your situation and applicable law. We are a debt relief agency and we help people file for relief under the bankruptcy laws.
Overview Of An Adversary Proceeding To Discharge Student Loans In Bankruptcy
It doesnât matter what type of bankruptcy is filed. Student loan borrowers in both Chapter 7 and Chapter 13 bankruptcy can bring an adversary proceeding against to discharge student loans. But, since Chapter 13 bankruptcy requires a payment plan and involves filers with a monthly income sufficient to make monthly payments, showing undue hardship is more difficult.
The purpose of the adversary proceeding is to show the bankruptcy court that your current income isnât enough to maintain a minimal standard of living while having to make student loan payments. If you can make this showing, the bankruptcy discharge will give you a true fresh start by wiping out your student loan debt.
Why do people say student loans canât be discharged in a bankruptcy proceeding?
Because itâs not automatic like it is for credit cards or other personal loans. It takes an extra step, and bankruptcy courts have often made it hard for student loan borrowers to discharge student loans. Thereâs the Brunner Test, for example, which requires you to show that youâve made a good faith effort to pay back your loan.
If you havenât made student loan payments, that can be held against you, even if you had a deferment. You also have to show that your inability to make student loan payments will continue for a significant portion of the repayment period for the loan.
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What To Do If You Have A Plus Loan
If you took out a Direct PLUS Loan for your child’s education and are struggling to pay it back, consolidation might be an option. Be aware, though, that while increasing the length of your loan will decrease your monthly payments, it will also increase the total amount you will have paid by the end.
Refinancing the PLUS loan is another possibility. In fact, even if you are not struggling to repay your loan, it’s worth looking into refinancing to see if you can secure a lower interest rate and monthly payments.
The smartest financial move is to try to pay as much as you can toward the loan while you’re still earning money, even if it means you have to tighten your budget, and not take it with you into retirement.
Also try to avoid borrowing against your retirement funds, such as 401 plans, or cashing out of them early to cover the loan costs. Instead, if you are nearing retirement, consider working a few more years, if you are in any position to do so, to pay off the loan before retirement.