Parent Plus Loan question

[Goldielocks]

Why do so many students and parents consider the parent plus loans to be the student's after graduation?

Many, many graduated students list them in their student loan debts when posting case studies.  Internet articles written in the first person indicate that they are the student's responsibility.  Parents write in to ask what to do now that their child refuses to pay the parent plus loan monthly amounts...



????

Is there some vague wording on the contract or advertising that suggests in any way that these are loans that the student is responsible for?   From what I gather, it is not like when a parent co-signs the kid's car loan, then is stuck with payments when the child defaults (which was previously unknown to them as they never received any info until the default...)

Also, if the parent dies, can the child be held accountable to a parent plus loan repayment?

[secondcor521]

It's very clear to me that PLUS loans are the parents' responsibility.

To answer your questions, though, I'm guessing that many parents make informal deals with their kids that they're taking the loan out for their kid so that the kid can achieve that dream of a college education, and that in return the kid will be expected to pay it off or else.

I've never seen a contract, so I can't answer that question.

If the parent dies, the kid is not responsible as far as I know.

[Goldielocks]

It's very clear to me that PLUS loans are the parents' responsibility.

To answer your questions, though, I'm guessing that many parents make informal deals with their kids that they're taking the loan out for their kid so that the kid can achieve that dream of a college education, and that in return the kid will be expected to pay it off or else.

I've never seen a contract, so I can't answer that question.

If the parent dies, the kid is not responsible as far as I know.

Thanks, I kind of get that, except that usually the kid would then say "I owe my parents XX to repay them for student loans"  .. Like they do for a car or house loan  or a cc repayment loan, that needs to be repaid.

It's the phrasing that gets me.   So many students call them "my loans"...and they turn out to be parent plus loans...
  I wonder why that is?  Anyone want to suggest an answer?

[patchyfacialhair]

I was an immature student my first year of college, racking up $40k in student loans (parent, federal, and private), and earning a 1.7 GPA.

After that first year, I committed to focusing on the important things like studying/not partying, and told my parents that I'd pay for my education 100% going forward including all loans that I wasted that first year.

While they said it wasn't necessary, I did it anyway in exchange for moving back home rent free. So that's why I counted parent plus loans in my student loan total way back when (well before this blog/forum was ever a thing).

Edited to add: Now that I have a kid of my own, my wife and I agree that we'll cover tuition, at most, if possible. She also put herself through school with even less help (she moved out right after high school), and we both feel that having skin in the game was a huge reason why we became who we are today.

[katscratch]

My son considers the PLUS loan I took out as his debt even though we both know legally it's mine, and was given based on my income and assets. He includes it in his projected budget along with his loan, for simplification. I think he would roll his eyes pretty hard if I edited that line item to My Mom's Debt That I Am Paying. 

I'm guessing a lot of people describe "my debt" rather than "my parents' debt that I am paying" because it's easier, and because they can pay the loan directly rather than having to pay their parents who then pay the loan so it functions the same as their own debt. Semantics? Sure.

[Goldielocks]

I'm guessing a lot of people describe "my debt" rather than "my parents' debt that I am paying" because it's easier, and because they can pay the loan directly rather than having to pay their parents who then pay the loan so it functions the same as their own debt. Semantics? Sure.

Ah,  that may be it.  Does the student see or receive the monthly amount?  Can log in to view it, etc as well? 

[katscratch]

Ah,  that may be it.  Does the student see or receive the monthly amount?  Can log in to view it, etc as well?

As far as I know the loan only shows up on my account and my son could only access it if I gave him my login information -- transfer of Parent PLUS loans to the student is not allowed; we'd have to refinance through a private lender. His current plan is to set up automatic withdrawals on my account from his bank account - he's done this for several years as an authorized user on my credit card.

We've had regular discussions about finances where we both go over our accounts, so the numbers are discussed as part of our overall budget planning sessions. I print hard copies of the loan information for his records. A different family may do it differently, of course, and some students may find it easier to pay their parents instead.

[Goldielocks]

Okay,  I read the AirBNB article by MMM this week... and again, the author stated that she started "with something like 50K+ of student debt left in a Parent Loan"  [sic assume this capitalization means parent plus loan] without any hint of a comment like "I promised my mom I would to pay the monthly amount for the parent plus loan she took out for me"....

So a new question entered my head:   As a parent, I simply do not understand how I would ask my kids to pay off my loan, that I took out in order to pay for something for them, that I failed to previously save enough for (if I thought it was that important)...??!   

Can someone on MMM explain it to me?   Why do parents ask their kids to pay off the parent's Parent Plus loans?
  (slightly different from the earlier question about why do kids pay these loans.. I want to know what is going through the parents' heads)

If I rack up my CC for clothing, braces, a family vacation (or to send my Grade 12 child without me on special high school trip overseas), I would not ask them to pay me back. Nor if I gave free room and board while they are in school.   

I won't ask my kids to pay me back for money I saved for them (in a 529 or an RESP) to go to college.  Why is a Parent Loan different from pre-saved monies?  Why is a parent plus loan different from a CC or a LOC in terms asking our kids to repay it?     

[patchyfacialhair]

Goldielocks: it's possible that the parent and child in your example have given themselves a set of 2 options: mommy/daddy take out a parent loan but make the kid pay for it, or the kid gets a private loan.

The parents are "helping" in the sense that the kid gets a lower rate, different payment options (based on parent's income), etc. I'm not saying it's right, but just answering your question.

[Goldielocks]

Goldielocks: it's possible that the parent and child in your example have given themselves a set of 2 options: mommy/daddy take out a parent loan but make the kid pay for it, or the kid gets a private loan.

The parents are "helping" in the sense that the kid gets a lower rate, different payment options (based on parent's income), etc. I'm not saying it's right, but just answering your question.

Like a co-signed car loan, without the co-signing part?    I guess I would look at it like "I have given my DD a personal loan of X, for which I used my LOC / Parent Plus loan to fund"...?l  And the repayment terms would be specific to my daughter and I and not the exact loan repayment terms...

But honestly,  most of the time, I don't think it is the kid actively asking the parents to help them reduce financing costs versus getting a private loan. my instinct tells me that there is something about how these loans are presented to parents and kids, or marketed or ??, that causes the people involved to look at them differently from a car loan co-signing, or a personal loan, or a HELOC draw, or even versus pulling from one's savings.

Most parents don't ask kids to repay money they pulled from savings for College, but many do think of the Parent Plus loan as the child's responsibility... and are sometimes surprised when the kids won't or don't.

[katscratch]

Funnily, my son just texted me today, "I think I need to take out a Parent Loan again this year. If you're ok with that, the rates are still much better than a private loan. Same terms- I want to pay you back."


So in asking him further questions- he is mortified at the idea of me taking cash from savings that are currently earning a decent rate; he'd rather sell his (paid in cash) car. He feels he should be responsible for 100% of his education costs since his future earnings will be based on his work, not mine. He considers the PLUS loan another arm of financial aid available to him- so thinks of it as part of his total financial aid package, but does understand that it is not legally his debt.

I think you are spot on in your assessment of how it is presented to families as opposed to other types of lending, that because it's "part of" financial aid overall it's easy for students to think of it as "theirs".

[ManlyFather]

Can someone on MMM explain it to me?   Why do parents ask their kids to pay off the parent's Parent Plus loans?
  (slightly different from the earlier question about why do kids pay these loans.. I want to know what is going through the parents' heads).

Why is a Parent Loan different from pre-saved monies?  Why is a parent plus loan different from a CC or a LOC in terms asking our kids to repay it?   

It seems you have 2 questions: why do students think a Parent Plus loan is something they should pay their parents back for, and why do parents think the Parent Plus loan should be repaid by their kid(s).

The reason these loans are taken is because there is not enough saved money to spend on the child's college education.  Often, it is because this price is enormous.

As for why the child thinks they owe the parent: if the child is a good person with high moral caliber, they will feel obligated to reimburse their parent(s) for taking out loans for the child's education.

You're right, though: it is the parents' responsibility to repay the loan.  If the child decides to not reimburse the parents, then the child does not have to.  This is probably a dick move, but it is legal.

As for the confusion about Parent Plus loans: often they are clumped together by the FA office at the university - this makes it SUPER easy to get enough dollars for the child to get into the classroom.  You don't have to shop around or do much work.

In summary, I think that a student should be commended for paying back their parents' loan(s) taken out for college.