Student loan repayment in the best of circumstances can be stressful. When a parent and child disagree about making Parent PLUS Loan payments, things can get especially ugly.
Today’s article is about perspective and options available. I’ll cover what the rules say and ways to avoid issues.
Let’s get started.
Does the Student or Child Have a Legal Obligation to Pay for the Parent PLUS Loan?
I’ve received many emails from parents who are upset that their child hasn’t been making Parent PLUS loan payments.
From a legal standpoint, it is the responsibility of the parent to pay the monthly bill. The parent borrowed the money in their name, and they have the obligation to repay the entire loan balance. The student loan contract is between the government and the parent. Even though the child was the one who benefited from the loan, they are not required to repay the debt.
In theory, a parent and child could have separately created a contract where the child must repay the parent. However, even if such an agreement existed, if payments were not made, the Department of Education would look to collect the money from the parent. The parent could then try to sue the child for breaking the contract between the parent and child.
In short, the law and the loan contracts are clear: a parent has the responsibility to repay the Parent PLUS loan.
Children May Have a Moral or Ethical Duty to Help
Just because the parent carries the legal duty to repay the loans doesn’t mean that children are entirely off the hook.
Parents don’t directly benefit from Parent PLUS loans. The only reason to get such a loan is to help someone else go to school. Borrowing a Parent PLUS loan is a selfless act to help a young person have a brighter future. If you benefited from a Parent PLUS loan, you should do your best to make sure that the borrower doesn’t regret their decision.
Even if the child cannot afford payments, there are many ways they can help.
Getting Parents and Children on the Same Page
The strange thing about Parent PLUS loan repayment is the ambiguity about repayment responsibility.
Under the law, it is the parent’s job. Morally and ethically speaking, the child should help whenever possible.
As a federal government loan, there are many options for managing Parent PLUS loans. These options include:
- Income-Driven Repayment
- Student Loan Forgiveness
- Public Service Loan Forgiveness
Thus, borrowers have several options to lower monthly payments and potentially have the debt forgiven. This article breaks down the many options available for Parent PLUS loan repayment. Parent PLUS loan borrowers may even be able to manage the debt living on social security.
Because of the many options available, parents and children usually can find a reasonable way to handle the debt. The key is to be honest about what you can realistically afford and to focus on potential solutions instead of finger-pointing and making accusations.
Transferring Parent PLUS Loans to the Student
I often hear from children who would like to transfer Parent PLUS loans into their name.
This desire is noble but not necessarily the best decision.
Some student loan refinance companies, like SoFi, will pay off the existing Parent PLUS loan and replace it with a new loan in the child’s name. While this move might seem like an ideal solution, it comes with significant risks.
This particular refinance process converts federal student debt into a private loan. As a private loan, the debt would no longer qualify for income-driven repayment or student loan forgiveness. Borrowers may qualify for lower interest rates by choosing a private refinance, but unless the borrower is certain they will be able to pay off the debt in full, refinancing could be an error.
When Your Child Isn’t Making Payments
Unfortunately, there isn’t an easy answer to this problem.
In most cases, the best path forward is recognizing that working together is the best way to manage the debt.
If I were interested in paying off my student loan in full, is there a way to negotiate a smaller than balance due settlement? Say for example, reducing loan payoff by the interest accumulated in the past?
I’ve never heard of a settlement like the one you are describing working for a federal loan in good standing. Generally speaking, settling student debt balances for any sort of relief is difficult.
It’s a good question and a reasonable theory, but the government doesn’t have any incentive to accept a negotiated settlement.
I am curious as to whether it is possible for a parent to sue a child, who benefited from student loans, for unjust enrichment.
The DOE agents, when March came around, told me that in order for students to get grants and their own loans, that credit-worthy parents needed to take out parent-plus loans. I hear, now, mixed stories on that. What is the truth?
You may be interested in contributing your expertise to our MR website(s).
A civil suit brought by a parent over non-payment of Parent PLUS loans would depend upon the tort laws of the state in which you reside. Its a question about student loans, but it is best answered by a local attorney.
As far as parent plus loans being required to secure grants or other student loans, that is not accurate. There have been many different grant programs over the years, but I’ve never heard of one that required the parent to borrow a Parent PLUS loan.