Parent PLUS Loan Deferment During COVID-19
What is a Parent PLUS Loan?
A Parent PLUS Loan is a federal student loan available to parents of dependent undergraduate students. This loan helps cover the cost of education that financial aid, scholarships, or other forms of assistance might not fully address. Unlike other federal student loans, Parent PLUS Loans are not based on financial need and have a fixed interest rate.
Deferment and Forbearance: What’s the Difference?
Deferment allows borrowers to temporarily postpone their loan payments. During this time, interest may or may not accrue depending on the type of loan. Forbearance, on the other hand, permits borrowers to stop making payments for a period of time, but interest accrues on both subsidized and unsubsidized loans.
COVID-19 and Parent PLUS Loan Deferment
During the COVID-19 pandemic, the U.S. Department of Education enacted several relief measures, including a temporary suspension of federal student loan payments. This included Parent PLUS Loans. Here’s a breakdown of how these measures affected Parent PLUS Loan borrowers:
Automatic Suspension of Payments: From March 13, 2020, until December 31, 2022, all federal student loan payments, including Parent PLUS Loans, were automatically suspended. Borrowers did not need to apply for deferment or forbearance; the relief was applied automatically.
Zero Percent Interest Rate: During this suspension period, the interest rate on federal student loans was set to 0%. This meant that borrowers did not accrue any additional interest on their loans.
Loan Forgiveness Opportunities: Borrowers continued to receive credit towards loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF), even while payments were suspended.
Eligibility for COVID-19 Relief
All Parent PLUS Loan borrowers were eligible for the automatic payment suspension. There was no need for special application processes or eligibility requirements beyond having an active loan.
Impact on Loan Repayment
The temporary suspension of payments and interest did not reduce the total amount owed on the loan but provided significant short-term relief. Borrowers could use this time to potentially save money or manage other financial priorities. However, it’s important to note:
Post-Suspension Repayment: Once the payment suspension ended, regular repayment terms resumed. Borrowers who were not actively making payments during the suspension period would need to adjust their budgets to accommodate resumed payments.
Interest Accumulation Post-Suspension: Although interest did not accrue during the suspension period, it resumed accruing once payments resumed. Thus, borrowers should be prepared for the potential increase in their total loan balance.
Planning for the Future
With the suspension period now over, it is essential for borrowers to plan their finances carefully. Here are some tips for managing your Parent PLUS Loans moving forward:
Review Your Loan Statements: Check your loan statements to understand your current balance and the impact of the suspension period on your repayment schedule.
Consider Refinancing: If you are struggling with the terms of your Parent PLUS Loan, refinancing might be an option. However, be cautious as refinancing federal loans with a private lender can result in losing federal protections and benefits.
Explore Repayment Plans: Investigate different repayment plans to find one that suits your financial situation. Income-Driven Repayment Plans, for example, can provide more manageable monthly payments based on your income.
Conclusion
The COVID-19 pandemic provided a temporary relief period for Parent PLUS Loan borrowers, allowing for automatic suspension of payments and zero percent interest. While this relief was beneficial, it is crucial to prepare for resumed payments and understand the long-term implications on your loan balance. By staying informed and managing your finances proactively, you can navigate the repayment of your Parent PLUS Loan effectively.
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