For many students, the only way to attend the college of their choice is for their parents to take out loans. Sometimes large loans.
Parents can borrow as much as the cost of attendance, which is determined by the school, minus any other financial aid the student receives. The current interest rate for federal PLUS loans disbursed on or after July 1 and before July 1, 2020, is 7.08 percent for the life of the loan.
A feature of this type of loan allows parents to request a deferment, meaning they don’t have to make payments while their child is enrolled at least part time. However, interest is still accruing during deferment. If a parent doesn’t pay the interest, it gets tacked on to the loan’s principal balance.
So what obligation do you have to a parent who takes out a loan for your education? It’s an issue that came up during a recent online discussion.
Q: My mom defaulted on parent PLUS loans that she took out for my education. She now owes nearly $90,000 ($13,000 in collection fees). I have student loans that I am currently repaying (about $50,000). I’m paying $800 a month to be out from under it in seven years. She was advised by the collection agency to either pay it all off or refinance in my name. I have just gotten settled in with tackling the loans in my name. My mom really can’t afford to pay the loans so I guess I will have to take the loans but I need some form of strategy. I have two kids and I don’t want to continue this cycle of debt. What can I do to tackle the debts?
A. Let’s be clear about who is responsible for a parent PLUS loan. It belongs to the parent. Period.
I would advise you not to take on the debt. Do not refinance the loans in your name, especially if you are already stretched financially.
Yes, understandably, you want to help your mother dig herself out of this mess. But can I be frank?
You were probably 17 or 18 years old when your mother first signed the loan documents. Clearly, she could not afford to send you to this school. I’m floored by the combined loan total of $127,000 for what I assume was an undergraduate degree. That’s crazy.
But I get it. She wanted you to have a good education. So you think it’s your fault now that she’s defaulted. I’m sure she did what she felt was right for you, and now you feel guilty that she’s weighed down with debt.
It’s a parent’s responsibility to step back and make sound financial decisions with some perspective. It was her responsibility to figure out whether she could afford the PLUS loan payments, not yours. And had she not signed for those loans, perhaps you would have gone to a more affordable college.
Therefore, you have no moral obligation to take on that $90,000 in debt. You shouldn’t feel guilty. (By the way, I also don’t approve of parents taking out PLUS loans and extracting a promise from a teenager to pay back what is legally their obligation.)
What you can do, however, is help your mother negotiate with the collection agency for a payment plan she can afford. If she hasn’t done so already, look into a federal direct consolidation loan. Assist her in her efforts to get out of default, which can open the door to other federal programs that could make her payments easier to fulfill. For example, if she consolidates the loans, she may be eligible for an Income-Contingent Repayment Plan. Under this plan, payments are capped at 20 percent of your discretionary income. Additionally, any remaining federal loan balance is forgiven after 25 years. But defaulted loans are not eligible for repayment under any of the government’s income-driven repayment plans.
Also, check to see whether she is eligible for public service loan forgiveness.
After you’ve paid off your student loans and your financial situation is stable, it’s fine to help your parent make PLUS loan payments. I don’t suggest you take over the loans by refinancing into a private loan. If you refinance, federal benefits such as default rehabilitation, loan forgiveness and deferment go away. Instead, send in payments on your parent’s behalf. It still is not your responsibility, but it would be a magnanimous thing to do.
Here’s something for parents to remember when taking out PLUS loans:
“A direct PLUS loan made to a parent cannot be transferred to the child,” the Department of Education says on its student aid website (studentaid.ed.gov). “You, the parent borrower, are legally responsible for repaying the loan.”
Again, when the decision is made to take out PLUS loans, the students are usually young adults who often don’t understand the gravity of decades of debt. So it is imperative that parents exercise good financial judgment.
In this case, you are not your mother’s keeper.
In a previous chat, a reader asked how to say no to your child when he or she gets into a dream school you can’t afford. Here’s the question and my response:
Q: I know what you’ve said about sending one’s kids to state university or a combo of community college and State U, and I totally agree. Then stupidly I told my high school senior to apply wherever she wanted and “we’ll see where you get in.” Big mistake! She got in everywhere and is begging to be sent to that darn dream school that costs almost three times as much as other choices. I have tried “no” as a complete sentence, but that isn’t enough so that she really gets it. Can you remind me what to say firmly and lovingly that will help her understand why she can’t go and that she’ll be just fine at the less expensive school? I will stand firm on not borrowing or mortgaging my home for this! Just want peace in the house.
A: If your child did everything you asked and excelled in high school, saying no to her dream school seems like a betrayal.
And yet, you have to be the adult with the foresight to understand it’s the student — not the school — that matters most.
If your child is young, read: How we sent our children to college debt-free
Get this book: “Where You Go Is Not Who You’ll Be — An Antidote to the College Admissions Mania,” by Frank Bruni, a New York Times columnist. In it, Bruni writes:
“The nature of a student’s college experience — the work that he or she puts into it, the skills that he or she picks up, the self-examination that’s undertaken, the resourcefulness that’s honed — matters more than the name of the institution attended. . . . Education is indeed everything, but it happens across a spectrum of settings and in infinite ways.”
Walk through the numbers for the cost of attendance and the debt that you and your daughter will have to borrow for her to go to her dream school. If she continues to press the issue, stay strong. Don’t spend more than what you can afford.
Read this Q&A with Bruni in which we answer questions about going deep into debt to pay for college. (Don’t do it!)
Color of Money Question of the Week
Do you feel you’re morally obligated to pay your parent’s PLUS loan? Are you a parent who feels your kid owes it to you to contribute or take over PLUS loan payments? Send your comments to email@example.com. Please include your name, city and state. In the subject line, put “Parent PLUS Loans.”
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