I Can’t Afford to Pay My Mom’s Parent PLUS Loan for My Education

Question:

Dear Steve,

Hey there, so my stepmom took out a parent plus loan to the tune of $100k to pay for my tuition. Obviously, I’m the one stuck with that bill now. She makes about $18k per year so she can’t pay it nor can she help me pay it.

The curveball here is my Dad. My Dad makes over $100k per year so any income based repayment plan would kill me since they file their taxes together. His pay would be taken into consideration when I switched to income based repayment and my monthly payment would likely go UP. What can I do?

My monthly payment is just under $900 at the moment and its essentially crippling my plans of ever moving out, getting married, etc etc. I don’t have 900 bucks a month for ONE loan. Any suggestions would be super appreciated!

Chris

Answer:

Dear Chris,

Scrreech!

Let’s get one thing straight right away. These are not your loans. Parent PLUS Loans can’t be transferred and are not the liability of the student. Any liability that exists between the student and the debt is an agreement between the parent and the child. Not the lender and the child. For more about this, see this article.

Now your mother may be eligible for an income based loan repayment plan, but you are not for the Parent PLUS loans. She could consolidate the loan into a Direct Loan and then apply for the Income Contingent Repayment (ICR) Plan. More about available programs can be found here.

What I would suggest doing is sitting down with your mother and father and coming up with a strategy.

Since tax filing season is coming up, they may elect to not file taxes jointly. If they don’t then your mother’s ICR would be based on her income alone. As long as they are filing jointly, it would be based on both incomes.

Under this plan her payment would be 20 percent of her discretionary income, down to as low as $0 per month. Payments are recalculated each year and are based on updated income, family size, and the total amount of the Direct Loan.

If your parents followed this strategy they you could afford to repay the ICR payment for your mother and you could have your own life.

If your mother was willing to take out loans on your behalf to facilitate your going so deep in debt, she must have been aware the loans were in her name and her responsibility. If she is telling you otherwise, she is mistaken.

The bigger tragedy here, if there could be one, is if these loans were taken out for a for-profit school or poor performing college.

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This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.