When President Biden signed an executive order canceling up to $20,000 of student debt, the most obvious beneficiaries were students. But many parents could share the relief as well, because millions of them have taken out loans to bankroll their children’s educations.
“There are a significant number of parent borrowers, and they’ll benefit from this,” said Mark Kantrowitz, a student loans expert and author of the book How to Appeal for More College Financial Aid.
Due to the rising cost of higher education in the U.S. — the average school year at a private college now costs $38,185 — students applying for financial aid often max out what they can borrow from the federal government, but still can’t pay their tuition. In many cases, their parents make up the difference by taking out loans themselves — leaving both generations in debt.
The numbers on this issue are sobering. According to a recent study by the think tank The Century Foundation, more than 3.7 million American families owe money on federal Direct PLUS loans — colloquially called “parent PLUS loans” — which help parents pay for their kids’ undergraduate programs. Among those families, the median debt at graduation is roughly $29,600.
“Very few parents actually do borrow … to help their child get a bachelor’s degree, but those who do borrow a lot,” Kantrowitz said.
So for many families, Biden’s executive order could offer some much-needed help. The plan provides relief in two ways: First, it extends the pause on federal loan repayments through December 31, 2022. And second, it forgives up to $10,000 in debt for those with loans held by the Department of Education. Those who received Pell Grants are eligible for an additional $10,000 in relief, for a total of up to $20,000.
Are parents eligible for this help? The answer is complicated. Some loans qualify, others do not, and many are somewhere in between. Plus, the government is still gradually explaining the details of the plan, so the answers may change over time — and to muddy the waters even further, Republicans opposed to the relief may challenge the order in court.
“Congress never contemplated that this was an authority the president had,” said Scott Buchanan, director of the Student Loan Servicing Alliance. “We’re developing a program that has no framework in the law.”
Here’s a look at which loans currently qualify for relief, and how financial advisors can help clients get it.
Millions of parents have taken out student loans for their children, but only some of them are eligible for forgiveness under a new executive order. Here’s a look at who qualifies.
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