No, don’t refinance the loans in your name.
For many students, the only way to attend the college of their choice is for their parents to take out loans. Sometimes large loans.
Why you shouldn’t take on Mom’s debt even if she defaults on the Parent PLUS loan for your education
The federal government makes this easy with direct PLUS loans, which are available to the parents of dependent undergraduates, graduate students and professional students. When the loan is made to a parent, it is commonly referred to as a Parent PLUS loan.
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 , 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?
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.
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 hop over to this website 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.
