Is the student responsible for repaying a Parent PLUS loan?

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Nick Mann

By Nick Mann

January 2, 2019

Many Parent PLUS Loan borrowers are curious about who’s responsible for repaying a Parent PLUS Loan. Is it strictly limited to the parent? Or can the student step in and handle it? There are some very specific rules in place that dictate who must pay back the debt.

Parent PLUS Loan Repayment Terms

Only the parent borrower is required to pay back a Parent PLUS Loan, as only the parent signed the master promissory note for the Parent PLUS Loan. The student is not responsible for repaying a Parent PLUS Loan. They’re under no legal obligation to do so.

If a parent has an adverse credit history, they must obtain an endorser who will agree to repay it if they don’t. However, the U.S. Department of Education states that the child on whose behalf the loan is borrowed cannot be the endorser.

In other words, the parent is fully responsible for repaying the Parent PLUS Loan, and the child can’t be forced to assume responsibility for the loan.

See also: Complete Guide to Parent Loans

Can a Parent PLUS Loan Be Transferred to a Student?

No, the U.S. Department of Education says that a Parent PLUS Loan cannot be transferred to the child. The parent shouldn’t obtain a Parent PLUS Loan with the intention of transferring it to their child at a later time.

Side Agreements: A Potential Workaround

This begs the question. Can arrangements be made where the student pays at least part of the loan instead of the parent? Yes, there are a couple of options.

One solution is to enter into a side agreement. This is where the student agrees to make payments on the Parent PLUS Loan. Though not legally binding, the child voluntarily contributes all or part of the loan repayment. For instance, they might give their parents a certain amount of money each month to offset the costs.

Going this route offers two main benefits.

  • First, the parent isn’t left repaying a massive loan on their own. A Discover Student Loans survey found 43 percent of parents were “very worried” about helping pay for their child’s college education. Side agreements lessen the financial pressure placed on parents. In turn, they’re able to focus on other financial goals, like saving for retirement or paying off their mortgage.
  • Second, parents don’t have to worry about hurting their credit history. Cosigning for private student loans creates issues if the student is late with payment. This can potentially damage the parent’s credit history along with the student’s. Having children help out without formally cosigning increases the likelihood of keeping the parent’s credit history intact, since the parent remains in control.   

Private Student Loan Refinancing

Another option involves refinancing the Parent PLUS Loan into a private student loan. In effect, this transfers the Parent PLUS Loan into the student’s name, but it involves a new loan with new terms and conditions. The student is then responsible for repayment of the new loan and the proceeds from the new loan pay off the Parent PLUS Loan. If a child is willing and financially able, this can greatly reduce the parents’ debt burden.

Only a handful of lenders currently offer this type of refinancing, including Earnest, Laurel Road and SoFi. But, other lenders might offer it as an option in the future.

The interest rates may be much higher than the fixed rates on a Parent PLUS Loan, since the child will be refinancing the loan on their own, without a creditworthy cosigner.

Borrowers should be aware that refinancing federal loans into private loans results in a loss of federal protections. This means that options like longer loan deferments and forbearances, loan forgiveness and death/disability discharges may no longer be available.  

It can also place a financial strain on recent graduates. Since refinancing a Parent PLUS loan into the child’s name will increase the child’s debt burden, it will be more difficult for the child to obtain a mortgage, contribute to their retirement or save for college for their own young children.

Clearing Up Confusion

A student may feel it’s their moral duty to repay a Parent PLUS Loan. But they’re by no means legally required to do so. At the end of the day, it’s up to mom and dad.

However, there are some workarounds where a child pays at least a portion. Understanding the different options along with the pros and cons of each is critical for making the right decision.

See also: 14 Things That Could Happen If You Don’t Pay Your Student Loans

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