There are a lot of misconceptions about student loans. A lot of people hate them, a lot of people need them. The majority of people don’t understand every facet about them – and that can lead to trouble.
Given that student loans can be a huge part of your financial future, you need to understand how to best pay for college, and how to pay off student loans fast.
Given that there is over $1.5 trillion in student loan debt, and that the average graduate has almost $36,000 in student loans, borrowers need to understand these facts to make sure they are making the best decisions possible.
Share your thoughts in the comments -> did you know these facts about student loans?
If you’re not quite sure where to start or what to do, consider using a service like LoanBuddy to help you figure out your student loan debt. LoanBuddy analyzes your loans, and helps you find the lowest repayment plan and loan forgiveness options you qualify for. Check out LoanBuddy here >>
1. The Collateral For Your Student Loan Debt Is Your Future Earnings
When you buy a car and get a car loan, the collateral for the car loan is the value of the car. If you don’t make your monthly payments, the bank simply repossesses your car. The same is true for a house and a mortgage. You don’t pay your mortgage, the bank forecloses on your house.
So when you take on student loans, what do you think the collateral is? Just goodwill? No, the collateral on your student loans in your ability to earn money in the future. If you fail to pay back your loans, the lender (either the government or bank) can garnish your wages, garnish your Social Security, and even offset and take your tax refund.
This is the key reason why, for the most part, student loans aren’t dischargeable in bankruptcy. Bankruptcy helps liquidate your assets to repay your debt and cancels the rest if you really can’t repay it. But with student loans, as long as you have the ability to earn, you have the ability to pay something. It’s also the key reason why there is student loan forgiveness for being disabled – you simply can’t earn any more money to repay the loans.
So, when you take out student loans, you need to calculate your ROI (return on investment) and ensure that you can repay the debt.
2. You Can Refinance Federal Student Loans
There is a big misconception about student loan refinancing. Many borrowers don’t think they can refinance their student loans to lower their payments, specifically with private student loans. However, since 2009, the government has allowed borrowers to refinance their Federal student loans… into private student loans.
Now, this doesn’t make sense for a lot of borrowers. If you rely on your Federal student loans for income-based repayment programs, or some type of forgiveness program, then you shouldn’t refinance your loans this way. The reason is that you will lose access to student loan forgiveness programs and special features like deferment and forbearance.
However, if you are on the Standard Repayment Plan and are looking for options to lower your payment and interest, the refinancing into a lower interest rate private student loan could make a lot of sense. I recommend using Credible, a marketplace for student loans. Like Kayak or Expedia except for student loan refinancing, Credible helps your receive offers from multiple lenders after filling out a single form.
A special offer for College Investor readers – get up to a $750 bonus when you refinance your loans with Credible!
3. Parents Who Take On Loans For Their Kids Owe The Debt
One of the most commonly asked questions I receive about student loan debt goes like this: “I took out $30,000 in student loans to pay for my daughter’s college. Now I’m 55 and nearing retirement, and my daughter can’t make payments because she doesn’t have a job yet. What are my options?”
When getting ready to finance college, a lot of parents are under the misconception that if they take out student loans, their children have to make the payments on them. This is incorrect and one of the most misleading facts about student loans.
If a parent takes out a loan, the parent is responsible for the loan – not the student. If the student can’t pay, the parents are on the hook for the debt. Want to switch repayment plans? It might not be possible.
Parents should never take out student loans for their children. Going back to Fact #1 – the student loan’s collateral is earnings. If the parent takes out the loan, the collateral is the parent’s earnings now, not the student.
If you already did, and are struggling, here are you’re options for dealing with Parent PLUS Loans.
4. If You Don’t Graduate College, You Still Have To Pay Back Your Loans
Too many students go to college to “find themselves”. This is not a good idea. College is expensive. Life changes. In a lot of these stories, the student ends up leaving college to pursue a dream, with no degree and a bunch of student loan debt.
The fact is, whether you graduate or not, you’re still on the line for your student loan debt. Just because you don’t finish doesn’t get you out of repaying what you’ve already spend on school. I was recently talking to a woman named Sara, who went to college for a year and a half before deciding the college wasn’t for her. She accrued $45,000 in debt from that year and a half. She really wanted to become a dental hygienist, which required another couple years of vocational school, at a cost of $20,000 per year. She was looking for a way out of the original debt – but it wasn’t happening.
Whatever your post-college plans are, you need to repay your debt. Vocational school can be a great option, but remember the total cost of school post-graduation. You still have to repay your student loans even if you dropped out of school.
5. Cosigners On Student Loans Are Just As Responsible As The Student
Finally, when you cosign a loan, including a student loan, you are just as responsible as the borrower. Parent, grandparent, family member, friends – don’t cosign a student loan. If you really must, you need to cosign a student loan the right way.
When you cosign a student loan and the student can’t repay the debt – you must repay the debt. In a worst-case scenario, if you cosign a loan and the student dies, you might still have to repay the debt.
Even after graduation, and the student is making payments every month, it can be difficult to get a cosigner release. That means, you can still be on the hook for the entire duration of the loan. This can have an impact on your own credit score, and even prevent you from purchasing a car or house in some circumstances.
If you’re not in a position to personally take out a student loan, then you shouldn’t cosign one. It’s the same thing.
If you’re considering refinancing your student loans, look for student loans that have “cosigner release”. This option allows for the cosigner to be removed from the loan after a set number of on-time payments. You can compare options like this at Credible for free.
Sadly, in cases where a borrower dies, the cosigner could also be responsible for the debt. That’s why it’s so important for cosigners to ensure there is a term life insurance policy for the borrower just in case. We recommend getting a quick quote at Haven Life.
Bonus Fact: Where To Get Help
Even though I’ve said countless times you can do it for free at StudentLoans.gov, there are still people who’ve asked me “that’s great Robert, but I still want to pay someone to help me – who can I trust?” That’s a fair question, so who can you trust?
The basic starting point is to call your student loan servicer and get help directly. They are literally paid by the U.S. Government to help you with your student loans.
Next, you can do a lot of it yourself on StudentLoans.gov.
Finally, you can consider paying an expert for help. If you’re not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.
If you need help, it can make sense to pay for it. Just don’t pay too much and really know what you’re getting.
Did you know these student loan facts? Have you ever had to get help with your student loans?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
Celeste says
I just started college a month ago and I already want out but don’t know what to do. They’re trying to screw me over and have me set up for $30,000 for two years
Faylinn says
My younger sister has been talking about taking out student loans for college and so I am really glad that I found this post, because I am going to send it to her to look over. However, I had no idea that loans could be refinanced for lower payments. If she is going to be doing loans, though, should she be looking into that while she is taking out loans or after she finishes school?
Robert Farrington says
You **should** only refinance private loans, not Federal loans (there are exceptions, but this is a pretty general rule). Don’t worry about it up front. Only take out Federal loans up front and really focus on ROI – return on investment. She should never borrow more than she expects to make in her first year after graduation.
So, if she expects to be a teacher, don’t borrower more than $40,000 (or $10,000 per year for 4 years). If she plans to be an engineer and will earn $60,000, don’t borrow more than that. Hopefully that is a good guide for her.
Nicholas Rokita says
why should one not take out more loans than their expected annual income? Or say they live with their parents for a few years after graduation to cut down on living expenses would you still give the same advice?
Robert Farrington says
It’s a rule of thumb, so not hard and fast. The reason is you’ll find it difficult to make the payments after graduation if you borrow more. If you live with your parents, your expenses will be lower, so that will help, but at the same time, I would look for ways to minimize costs of education.
It’s rare that spending more than your first year’s salary on education is worthwhile and will give you a positive ROI.
Juan says
If someone owes on a student loan and they are already getting their refund withheld, then they cosign with someone else for a house loan, would the house be subject to be taken as form of payment toward the loan??
Robert Farrington says
Probably not, but it’s best to consult a student loan lawyer. The bigger issue is, if you’re getting your tax refund offset, it means you’re in default on your student loans. That also means your credit is terrible. Chances are, the borrower would be better not even having that person as a cosigner for a mortgage, because they are just hurting the process, not helping.
Anita says
I’m not defaulting on my loans, I pay them regularly. My problem is the interest accruing. I already owe twice what I borrowed because it took me so long to get serious about paying them. I plugged some numbers into a student debt calculator and it looked like, even if I doubled my monthly payments and had the extra put on the principle, I would only have paid down a small fraction of what I owe 10 years from now. This is why people decide to default. It’s like you’re throwing money away because the payments aren’t making a difference. I spoke to a financial counselor and he recommended that I pay the minimum amount and then in 25 years the balance would be forgiven. That way, I can live my life, and still protect my credit. Do you think that’s good advice? I don’t want to spend the rest of my life working to pay off loans that aren’t going anywhere. Thanks!
Robert Farrington says
The plan they are talking about is IBR – and yes, it can be a good strategy. As long as you pay your payment each month (and certify your income annually), you’ll see any remaining balance forgiven. Plus, your credit score is more about on time payments, so don’t be late.
Shelly Neal says
I had my loans consolidated. Does the 25 years start from that time or from when I first started paying on them?
Robert Farrington says
For when you first started paying them under a qualifying repayment plan.
Yohnat says
Hi,
In 2009, I took a loan from federal student loan 20,000 and 14,000 from the school loan, a total of 40,000 for a two year collage. I am currently not working full time. I made an arrangment IBR plan on my Federal loan. But I cant afford to repay my remaining 3,400 (14,000) on my other school loan . I woud rather pay my Federal loan so to prevent wage gurnishment.
If Im deliquent on my private school loan of 3,400 , what would be the worrest case senarrio? my credit score is at 627 at this point 🙁
Thanks
Robert Farrington says
If you default on your private student loan, the worst that can happen is your lender can sue you, they win, and they get a judgement to collect against you – which can also result in wage garnishment and more.
Angela says
How often this happen?
Robert Farrington says
A private loan lender will almost always sue you if you’re in default for over a year. It’s more a matter of “when” than “if”.
Larry Mazola says
About 15 years ago my wife refinanced her student loans. They are at about 8% interest rate. She has made regular payments all along but has paid off less than half the debt. We would like to pay off the entire principal now but the loan company says that we have to pay the interest that we would have paid had we just paid it out over time. How can we pay off the principal without paying all that interest?
Robert Farrington says
You need to call the lender and ask for a final payoff amount – and give them a specific date. They will calculate the balance at that date, and that is the amount you’ll have to pay to get rid of the loan.
Jeremy says
I had to move due to a death in the family and the tech college wasn’t in the area I had to move to. They didn’t seem to care and now I realize I should’ve talked to the ones paying the school. Is my situation the same? I’ve also let them default and owe almost double what I borrowed.
Robert Farrington says
Not quite sure what you mean? Did you not finish? Do your credits not transfer?
Dallas says
I did not attend the school that the Federal Loan is listed as paid to. I never attended a trucking school. Is there a way to get out from under my loan debt based upon this? I went to school for medical assisting (in 1989) and have never been able to obtain work in the field. The Fed loan was being paid from my paychecks and they suddenly stopped taking payment (This occurred about 3 years ago.. Today they have just a s suddenly restarted with no warning. They also have taken my taxes for all these years, so I don’t know how I even still owe over $8,000 for a course that was about $6,000 in 1989
Robert Farrington says
If you believe that the loan was taken out incorrectly, you might consider speaking to a lawyer about this.
Cicerly Clemons says
In 1997 I attended an orientation at a school in which my plans were to major in Health care administration. I was informed by the counselor that I sat with that that program wasn’t gonna start until the next semester, but I should get started on what they said were the prerequisite for this program. Long story short a semester later no health care administration program starting, the schools on an accreditation line that no school will accept the credits, so me and allot of other people left the school. The funds were sent to the school, not me, but I do remember being called up to the office to endorse a check for the first semester. When I left the school, shouldn’t the funds have been returned to the lender if I was not in attendance. Original loan was 2, 600 in 1997, I’ve been so stubborn about repaying funds I didn’t use that it’s now 5,300 in 2017. I don’t know where to start.
Robert Farrington says
There is a program called Borrower Defense To Repayment that may be helpful for you. Research it here: https://www.thecollegeinvestor.com/18752/understanding-borrower-defense-repayment/
However, don’t keep delaying your loans. They will only grow larger if you don’t take action.
Trina Elsman says
Can Students take out student loans without a parent co-signing ?
Robert Farrington says
Yes, Federal student loans are taken out be the student without a parent cosigner. Private loans can be too, but it’s rare – only 10% of private loans have no cosigner. Learn more about private loans here: https://www.thecollegeinvestor.com/16435/how-to-get-a-private-student-loan-with-no-cosigner/
HG says
Hi,
Question if the “school” contacted us for financial aid to be a co-signer on a loan, and we advised them that said loan in question we are only to be co-signers, the person we spoke with told us yes you will only be co-signing in order for child to get loan, sent us the paperwork stating “parent copy” as well a when approval came in had child’s information on it. Come to find out we are the holder of the “loan”. Not the co-signers. Is this legal?
I have googled, searched and dug like I was looking for a missing person in order to find some kind of answer or similar case. Nothing.
Any help is greatly appreciated.
Thank you.
Robert Farrington says
What type of loan is it? A Federal Parent PLUS loan is just in your name. A private loan that you cosign is in your child’s name, but you are equally responsible for the debt. As such, if your child doesn’t pay, you have to. And anything that is late could impact your credit.
If you feel like you were mislead, you might consider speaking to a lawyer.
Rene says
I work for state agency and have been in contact with customer service at Student loans.gov. in regards to Public Loan forgiveness. I’ve been told so many different things every time I call in, now I’m finding other things out about loan forgiveness. I was advised to consolidate my loans (owe 20,000), apply for income contingent and possibly file my taxes married but separate so my payments are calculated off my income, not my husband’s. But now I’m seeing things that say loan forgiveness is not always the right thing to do. I already have 7yrs at my employment and plan to continue, but can guarantee I’ll be there another 10 yrs. How do I figure out my best repayment plan? I also found that after forgivenss the amount is taxable. So then i woukd owe IRS a large amount if i did make it to forgiveness. Do i talk to a tax adviser? I feel lost.
Robert Farrington says
Loan forgiveness is ALWAYS the best thing to do. Public Service Loan Forgiveness is tax free. Other income-driven repayment plans are currently considered taxable, but if you qualify for these plans, it makes sense because you likely can’t afford a higher repayment plan (and if you could – you wouldn’t be looking at income-driven options).
Remember, PSLF requires 120 qualifying payments – so if you’re 7 years in, you can potentially get your loans forgiven in 3 years.
We have a short program that walks you through exactly what to do: Public Service Loan Forgiveness Training Program.
HannahMackay322 says
Don’t go to college! I’m a teacher and I’ve seen a lot of kids go off to college too soon and fail out! Here is some advice for graduating seniors and their parents based on 15 years of observations.
1. Make them work and pay for some of it.( they have to have some skin in the game)
2. If they are immature and not self- reliant don’t let them go to a far off University.
3. Have them talk to recent graduates to get advice/tips; they are much more likely to listen to them than you.
4. A community college is a great place to save money and usually has professors who are teachers 1st unlike the research focused professors at Universities
5. Don’t be frivolous with your cash. Consider things like $25/month car insurance (from Insurance Panda), $20/month mobile phone (TMobile), $15/month gym membership (Planet Fitness), and use apps like GasBuddy to save money in other ways. College is expensive – save for it!
6. Speaking of which – Don’t try to “Keep up with the Jones”. This dooms kids and forces them into the student debt trap.
7. Don’t be afraid to let them fail. If you constantly bail them out you will be doing it for the rest of their lives and they will never grow as a person.
8. Make them aware of the differences in earning power/job availability of different majors.
9. The military, tech school, and apprenticeships are all viable alternatives to college.
10. Do a cost/ benefit analysis if you are going to take on significant debt make sure it’s for a valuable degree. 60k debt for a chemistry degree is ok, 60k for Art History is not.
Jazz says
If I sign up for school.. But I decide before class start before the first day before orientation. . before anything that its not a good time . Do I still have to pay the student loan back ? If so. Does the money come to my account.? And can I just repay them with the money I was supposed to borrow for school ?
Robert Farrington says
Yes, as long as you don’t owe the school any money, you can simply use the funds to pay the loan off.
Angela says
I have a question. I am in debt about $30,000 with my student loans. I was in deferment, but now I am in default. The loans were federal Stratford loans, but now are Great Lakes borrowing services loans. If I buy a house, can they take my house?
Robert Farrington says
Hi Angela, you need to get your student loans out of default. You’ll likely never be able to purchase a house unless you pay cash, because you’ll never qualify for a mortgage with your student loans in default. Furthermore, having a student loan default prevents you from getting an FHA, VA, or USDA loan, because if you default on government debt, it makes you ineligible to receive another government backed loan.
To get out of default, you need to go through a process called student loan rehabilitation.
Richard says
As a parent I don’t see as I have much of a choice not to consign because college costs much more than the max loan a young person with little credit and only part time work can qualify for. If I don’t consign then their choices are the military, community college (no 4 year degree there) or part time college for a long time. Parents are the only realistic option.
Robert Farrington says
Federal student loans require no cosigner. Only private student loans do. Parents could also get a Parent PLUS loan, but it’s highly NOT recommended. I wrote about this in Forbes: https://www.forbes.com/sites/robertfarrington/2014/07/14/parents-stop-taking-out-loans-for-your-childs-college-education/#60975aa460a6
A more realist (and better option), is to have candid discussions with your child early on about costs, expectations of contribution, and potential ROI. The bigger issue is students are borrowing too much for future jobs that don’t pay much. A simple rule of thumb is to never borrow more than your expected first year earnings. Here’s a full breakdown: https://www.thecollegeinvestor.com/7868/college-worth-investment/
For example, if you want to be a teacher, look at what the median starting salary is in your area. Maybe it’s $40,000? Okay, so don’t borrow more than $40,000 for your entire college costs. Want to be an engineer? Maybe the salary is $60,000 – don’t exceed that.
How do you close the gap between college costs, and potential savings/student loans? Scholarships and work. Also, look at knocking off general education courses at community college for a fraction of the cost. Take AP classes in high school to knock a year off college.
The bottom line is there are a lot of ways to reduce student borrowing, but it starts with the parents having good discussions with their college bound children about these important considerations.
Shiney says
What are the facts about parents paying their childs student loan debt after the child passes away?
Does it automatically become the parents debt? Or does it only become the parents debt if they were a co-signer?
Robert Farrington says
It depends. We have a full breakdown of what happens to student loans if the child student dies.
In general, for Federal loans, the loans are forgiven. The parent doesn’t inherit the debt unless the are a cosigner on a private loan. There are complication with PLUS loans we discuss in the article above.
J says
Can a student take out a loan for let’s say $17,000, pay-off a school balance, and use the excess money for another school (transferring from school A to school B)?
Robert Farrington says
If you have no balance at your school, and a student loan is dispersed to it, the bursar will usually just issue you a check. Then you can do whatever you want with the money. Just keep in mind you still owe the loan – so not a good idea to just go spending it willy-nilly.
Mason says
I went to college for a semester and decided it wasn’t for me. In that time I had about 4200 in loans which was in fall of 2014. They took my state taxes at the start of 2016 and have only emailed me one time, also was in 2016. I asked them how much my monthly payments would be and they wanted alittle over 350 a month. With me having a kid and a house I can’t do that. And I have never been contacted again. And it’s not on my credit report. What should I do?
Robert Farrington says
What kinds of loans were they? Federal or private?
To garnish your tax returns, they usually have to be Federal, unless you were sued for private loans and didn’t know you were sued.
For Federal, look at this article: https://www.thecollegeinvestor.com/20755/stopping-tax-offsets-due-student-loan-debt/
Then, get your loans rehabilitated: https://www.thecollegeinvestor.com/15577/student-loan-rehabilitation/
For private, you might want to consult a student loan lawyer: https://www.thecollegeinvestor.com/19516/lawyer-for-your-student-loan-debt/
Mason says
I would say they were private due to it was the school them selves that contacted me. I never signed any paper work about a federal loan. But they only took my state taxes one time, im going to contact a lawyer tomorrow and see what they say
Robert Farrington says
If it was the school that contacted you, it could have been a Perkins loan. Perkins loans are owned and serviced by your school.
Mason says
Thank you
Chester says
My dad took out a loan for me back in college (can’t recall the exact number but it was around $20,000 plus). We had an agreement that I’ll help him pay off the loan after graduation, it’s a student federal loan. At the moment I’m unable to pay this loan due to financial reasons and it’s already two payments late (a little more than 60 days perhaps) so the status of the loan is delinquent. My question regarding your #3 fact, is it myself who will be in debt or my dad? I know that the answer is clearly stated and I’m relieved to know about this, but just wanting to clarify for myself. Thanks alot.
Robert Farrington says
It’s your dad who is technically behind on the loan. Here’s some options for a Parent PLUS Loan.
Chester says
Thank you for your reply. My loan details show that I have direct sub, unsub and fed unsub stafford loan all together. The whole root of it started when I stopped college for the fall semester of 2009, then I returned in the spring semester and continued from there. Ever since then my dad instructed me to go to financial aid every end of the school year for continued support. Despite of all of this my dad is still the one technically behind it right?
Chester says
I looked at some of our conversations from years ago and he did apply for a parent plus loan when I was still in college.
Susan Griswold says
My daughter recently got married, she and her husband work (she did not graduate college). Can I be re removed from cosigner…
Robert Farrington says
Some private student loans have cosigner release. Usually payments have to be made for 2-3 years on time, then the cosigner can be released. Learn more here: https://www.thecollegeinvestor.com/15470/cosign-student-loan/
Tom says
It’s my understanding that there is a loan forgiveness program for people who go to work for state or non-profit agencies, but that it’s also contingent on working full time. After I graduated I worked as an adjunct professor at several colleges for 11 years, often working for several colleges at the same time, just to make ends meet. However, I was never able to secure a full-time tenure track position. I very much wanted to work full-time, and applied for full-time positions every year. In addition, many universities these days choose to operate by hiring large part-time faculty, greatly reducing available FT positions. Am I correct in that unless someone worked full-time, they were exempted from this option? If so, why is that? It seems to me part-time adjuncts are being penalized simply for not be able to secure FT work, and we need the loan forgiveness much more than those who received the FT positions receiving 50,000 + salaries.
Robert Farrington says
Public Service Loan Forgiveness does require full time employment to qualify. However, if you had two qualifying part time positions, that still counts as well. You can learn more about public service loan forgiveness here.
brent @ allaboutinterest.com says
I’m so thankful I didn’t have to take out a student loan. It’s one gift I received from my grandfather that I hope to repay to my children and grandchildren. It’s one reason I was able to start investing earlier.
Yvette Lopez says
I took out a federal loan for my daughter, and the school withdrew her, since its under my name, I have to pay it, but the director of the school was a jerk, and I cant even call and ask why she was withdrawn because I have no rights since she is over 18 (she is 23). What do I do here?
Robert Farrington says
You need to talk to your daughter. She’s an adult now and she knows why she was withdrawn or can find out. You need her to tell you… you might also want to stop borrowing money for your daughter if she isn’t going to be honest with you.
Katherine Irby says
I don’t get it. I have my own loans, $100K +..that I cannot pay. My kids are continually asking for parent loans. Sometimes, I get approved. How? I really don’t know. Now, I get notified that I have loans due at $800/month…this almost as much as my mortgage! I am so under…..I’m desperate. Please give me some good advice.
Robert Farrington says
If your children signed you up for Parent PLUS loans without your permission, you might find this helpful: https://thecollegeinvestor.com/20981/child-forges-name-parent-plus-loan/
If you are struggling with your own loans, read this: https://thecollegeinvestor.com/21512/student-loan-payment/
Ana says
Hello Robert,
I have Parent a Plus Loan 180k+ on my name to help my 2 children to finish their education. . At this moment I am remarried and unemployed. If I am applying for income base program after I get a job, is my husband’s earnings will be taken into consideration?
Thank you for your advice and opportunity!
Robert Farrington says
If you file taxes jointly, yes, his income will be considered for ICR (because they use your joint AGI). If you file taxes separately, they will count just your income. Read this: https://thecollegeinvestor.com/17807/the-math-behind-married-filing-separately-for-ibr-or-paye/
You might also find this article helpful since you have PLUS loans: https://thecollegeinvestor.com/17101/options-if-you-cant-afford-your-parent-plus-loans/
Katie says
Hello-I’m in default for $100K. I’m unemployed so I cannot do the loan forgiveness programs.
1- My parents bought me a car in full and name is on the title. Can it get repossessed? It’s not considered collateral if it is paid off, right?
2-Would my loans be passed on to my daughter when I die?
3-I believe my student loans are considered private because I graduated from a private college. Can I claim bankruptcy then?
Any help is appreciated. Number 1 issue is the car right now
Robert Farrington says
If you’re in default, you need to rehabilitate your loans and get back on track. Follow this guide: https://thecollegeinvestor.com/22174/student-loan-default/
1. No, they can’t repossess your car
2. No
3. This may or may not be the case. Doesn’t matter what kind of school you went to, you could have Federal and/or private loans. This is really important to figure out. See the article above I linked to.
** Even if you have private loans, you can’t get private loans discharged in bankruptcy in 99.95% of situations.
Melissa says
I recently had to take a leave of absence from my graduate program due to life circumstances. My Federal Direct Unsubsidized loan was already disbursed to the school, I dropped classes before the first day and filed paperwork. Where will that money go now? Will that be sent to me directly or back Dept. of Ed? It is already showing on my account for Navient as paid out, so I’m not sure what the next step is.
Robert Farrington says
If your school doesn’t send the money back, they’ll issue you a refund of the money, which you can turn around and pay off the loan immediately.
Melissa says
Hi, my daughter went to a technical college when she was 21 and is now 25. The school told me that I had to sign for the federal loan or she wouldn’t be able to go to school. She finished school, but they wouldn’t give her certificate for medical assisting because she stopped making payments while she was in school. Due to that she has never been able to get a job in that field. The loan is on my credit and on hers. Was it legal for them to force me to sign and is it legal for them to keep her certificate after they were paid for the schooling with the loan.
Robert Farrington says
Nobody can force you to sign a loan. And until all fees are paid, the school can keep the certificate. Since it was your daughters school, she needs to find out what’s going on. As a parent (and cosigner), that’s frustrating, but I’ve learned that most of the time not everything is revealed to parents.
It sounds like you signed up for a Parent PLUS Loan for your daughter. Read about your options here: https://thecollegeinvestor.com/17101/options-if-you-cant-afford-your-parent-plus-loans/
Nancy says
Hello, In 2016 my son took an approved leave of absence from a private university from January till April 1st of his sophomore year to work and decide if he was going to be able to continue in that school because it was so expensive. He had 3 Stafford loans out by that time. We were told by the university’s financial aid department that since he was still a student there, just on leave, that whether he stayed at that school or not, the grace period would be six months starting April 1st, the end date of his leave, so he would use up his grace period but there would be no penalty of early interest. He did decide that he needed to change to a public college which he began in August that year. He went 1 year to the college and now is at a public university. We had no idea that the interest on his loans would begin because of that semester off. I could lend him the money to pay off 2 of his loans and then he could pay me without interest when is able. He is receiving financial aid at the university. If I did that and he ever needed additional funds while in school, would he be able to take out another loan at that time?
Robert Farrington says
Whether you help him or not, it won’t impact his ability to borrow Federal loans in the future. The only thing that will impact it is if he’s in default on his loans.
Also, Stafford loans have two types: subsidized and unsubsidized. Most people get unsubsidized loans. With unsubsidized loans, the interest accrues through school. Only with subsidized loans is the interest covered by the government.
shane says
My daughter needed a bank account for her job and since she is 17, she had to have a joint account with an adult. I was wondering, if I owe student loans, can the government take money from this joint account even if all the money coming in comes from her paycheck at work? I was going to have her change it with someone else but if we can get away with it for just a year then she can put it under her own name when shes 18 end of next year. Anywho, just wanted to know if I need worry about her money being taken by the government if I owe student loans from 13 years ago
Robert Farrington says
Depends on the loan type and if you have a judgement against you. If you have a judgement against you, yes, that account is free game for a debt collector.
Nicole says
I have 58k in student loans, and I did not graduate. I’m making payment s but I can barley afford it, I have no car, and I working a part time job online. I feel stuck and I don’t know what to do.
Robert Farrington says
That’s tough. Here’s our guide to What To Do For Student Loans If You Didn’t Graduate.
Cherri Sheler says
Hello, I helped my niece co-sign for her first student loan to start school through Sallie Mae. They interest is really high and the payments are being made each month but I am looking to refinance while she is still in school. She will graduate in 2020 with a bachelors. My goal is that we lower the interest and get to a place that she can assume the loan herself at some point. I am finding that most lenders require that you have already graduated with a job to refinance. Is there any recommendation of me refinancing the loan sooner?
Robert Farrington says
You may find a local credit union to refinance, but most will require her to be graduated. Check out our list of the best places to refinance your loans and double check.
Ellen Poe says
My husband signed my name on parent plus loan because I had better credit at the time. I have been struggling to pay for 19 years. My husband is now totally and permanently disabled and I have had to retire in order to help with his care and we have always filed our taxes jointly. Since he is really the signer and he is willing to verify the fact by affidavit legally. Am I able to file for the disability loan forgiveness? We really need some help with this because we do not know what rights we have now.
Robert Farrington says
No, it’s your loan. Here are your options: https://thecollegeinvestor.com/17101/options-if-you-cant-afford-your-parent-plus-loans/
One of the options is to consolidate and then file for income-contingent repayment, which may lower your payment to $0 if you don’t earn enough income.
You should also work with your children to help you. 19 years after college hopefully they are earning some decent money. Either they help you with the loan now or help you with your life later.
Amanda Johnson says
I took out a loan in 2000. I can’t remember the amount. I have been paying monthly (electronic payments) since, and my balance is not going down. Also, my income tax was taken this year as an offset, though I have not defaulted. How do I find out who owns my loan, and how much I have paid and still owe?
Robert Farrington says
Check out this guide: How To Find And Follow Up On Your Student Loans.
Then read this: How To Stop Tax Return Offsets Due To Your Student Loans.
R. Dourdis says
My daughter-in-law graduated with a bachelor’s degree in education and a master’s degree in reading.She attended a private university (first mistake) and her parents told her they would pay the undergrad loans and she would pay the graduate loans (sounds good, right?) All 3 of them (mother, father and daughter) cosigned the loans. Her total debt when she graduated was $250,000 for the ability to teach (uhm-seriously?) and remember ALL undergrad loans were private. The graduate loans were federal. They have refinanced and sought whatever relief is available to them but the monthly payments are $2200.00 (grad loan payment is $200 and undergrad $2000).
Here’s the rub…the parents have renigged on their promise and some months they pay half the $2200 and sometimes they pay little or nothing. My son and daughter-in-law are both teachers and half of her take home pay each month is going to pay the loans. The question is, should my daughter-in-law tell them they either pay or she will stop paying and default? What would this do to my son’s and her financial future? Does my son have any legal obligation to this debt and can they attach any of his assets (in his name only) if the loans go into default?
Finally, would it be worth it for them to hire an attorney who could maybe help my daughter-in-law force the issue with the parents to drive home the point that this debt is theirs too and that they must pay each month? Is there a way to make them responsible to pay, other than going into default? Could they be sued by their daughter to enforce payment?
Robert Farrington says
What a mess! So many questions, so I’ll try my best to break them out for you.
First, has your daughter-in-law/son said why they’ve stopped paying. If they also cannot afford it, going after them for it is a bit moot. But, if they’re sitting on money and have taken care of themselves, then you can press the issue. But I’ve learned over the years that there are always many sides to family/money stories/issues.
Should my daughter-in-law tell them they either pay or she will stop paying and default?
I don’t think this a good course of action. Private student loan default is terrible, and will ruin everyone involved’s credit – which could even include job prospects for your daughter-in-law.
What would this do to my son’s and her financial future?
– Kill her credit score
– Could prohibit them from jointly getting any future loans (cars, mortgage, etc)
– Could disqualify them from rental properties (many landlords run credit checks and if they see this as a strategic default, they will avoid you like the plague)
– Could impact her job prospects, which then impacts the family’s finances
– If she’s sued (which will happen), the family’s finances are going to pay thousands to defend this
Does my son have any legal obligation to this debt and can they attach any of his assets (in his name only) if the loans go into default?
– Maybe. If he cosigned yes. If they were married after she took the loans and live in a community property state, then yes.
Would it be worth it for them to hire an attorney who could maybe help my daughter-in-law force the issue with the parents to drive home the point that this debt is theirs too and that they must pay each month?
– It never hurts, but it’s likely not going to help either. A good student loan attorney can at least educate them on the options and give clarity to what strategic default looks like
Is there a way to make them responsible to pay, other than going into default?
– They are on the loans. There’s not much more that can be done.
Could they be sued by their daughter to enforce payment?
– Unless there was a contract signed (or a very clear agreement – maybe email), likely not. But also, even if she did sue them, are you sure they aren’t avoiding this because they can’t afford it. Then, all you’re doing is giving lawyers a bunch of money for a judgement she’ll never collect – because they don’t have the money! And remember, things like retirement accounts are protected from lawsuits, really you just have their taxable assets to look at.
Ariana says
This is the stupid thing I’ve ever read! “Don’t take a loan out for your child to go to school”. “Don’t co-sign a loan for your child to go to school”. How the hell do you expect an 18 year old with no credit & savings to pay for college then?! If you want to be a decent parent, help the child pay (if able), if not, (like most parents cannot) the loan is the only option. Honestly such a dumb article. Do your research.
Robert Farrington says
I appreciate your fun adjectives to describe this article, but you’re missing a lot of key points.
There’s a smart order of operations that you should follow when paying for college: How To Pay For College. Parents can definitely help, but they don’t need to borrow to help.
College students can get Federal loans in their own name (not the parents) without any credit or income. Most private loans will require a cosigner, but at that point, the ROI on college really needs to be there, because PLUS loans are private loans are the biggest causes of student loan induced financial problems.
Monty Winger says
Your advice is sound, it’s people too ignorant to comprehend that become responsible for the student loan mess. I sent this link to my niece’s parents who lost their home to foreclosure. But they still dropped her off at a 60K easy-admit private college for a fluff unemployable major, when she has taken every summer off and brags about not wanting to work. She could have attended the honors program at our popular state university almost free, but nope–they feel entitled, and the foolishness you try to help people avoid will spell disaster as their younger kids follow suit.
Angelina Stone says
I’m a 50yo making $50K per year. I have 2 loans that are in default because I could not afford the IBR suggested of either loan – one wanted $800/mo, the other $600/mo – and neither was willing to accept what I could afford to pay – $150/mo to each, though they took the money I sent. The $25,000 loan ppl garnished my wages – they now pull $500 per month from my salary. The $80,000 loan ppl took my little $2500 tax refund this year, which I have no problem with because it’s probably more than they would have gotten from me at any rate. My credit was already an issue due to very bad decisions at a very young age, so it’s not a concern. I have downsized my spending, and I actually live comfortably, believe it or not. I don’t mean to sound flippant, but at my age, I’m just glad the calls stopped, honestly. They were relentless.
My questions:
1. My mother is planning on leaving me her home when she passes. Can either loan place a lien against me selling that property?
2. I understand that my social security can be garnished as well – I assume loan number 2 is waiting for that option. I have a retirement plan with 2 companies as well as a 401K. Can they garnish those as well?
Robert Farrington says
1. If these are private loans, yes.
2. No, but if they are private loans, they can sue you and get a judgement, and come after your estate.
A solution for these loans if they are Federal is to consolidate them into a single loan, and get that single loan on IBR. It will then look at your current income, and the loan will be treated as one payment/loan, not two. That should make it much more affordable into the area you can repay each month.
Wendy Johnson says
I have a question, I have two loans that they say I owe. For this particular school I never took one class. Do I still owe that money? Please help me understand.
Robert Farrington says
You need to find out about the loans and see what’s going on. Could it be identity theft? Find your loans using this guide: https://thecollegeinvestor.com/19370/how-to-find-out-who-owns-your-student-loans/
Larry Shryock says
in 1988 I took out a student loan I’m in default I haven’t worked in quite some time due to illness I recently got married and the only one working is my wife when she files income tax can they take her money for what I owe
Robert Farrington says
She can file what’s known as an “Injured Spouse” form to at least get her part of the tax refund.
Dara Yastrzemski says
I am planning on returning to school for a post master’s certificate and have been offered a student federal loan in the amount of 20,000 for full-time. I am not planning on attending full-time. However, I am planning on separating from my husband and taking out a student loan appeals to me, because it will give me the ability to use it for school tuition and the rest as down payments on an apartment and whatever else I may need, as I have no real savings. Would you advise something like this? The ROI would not be too much of an issue-I will graduate as a nurse practitioner. I currently have no outstanding loans.
I guess what I really want to know: If separated after obtaining the student loan, would it be subjected to “joint” income?
Robert Farrington says
The only concern here is that if you don’t enroll in full-time classes, they will change your financial aid amount and you might not qualify for that full loan amount.
Second, repayment would only be based on your income at the time of repayment.
Samantha says
Hello,
I am currently three years into PSLF. My son is in need of approximately $10,000 to get him through his first year of college. If I apply for the Parent Plus Loan, do you know how will this affect my PSLF? I may add, I do not intend to jeopardize my current repayment plan or my PSLF status to go through with this Parent Plus Loan. We will just have to go a different route . Would I be able to keep them separate? Thank you for your assistance.
Robert Farrington says
Each loan is treated separately. You getting a PLUS loan doesn’t impact your PSLF on your current loans.
I would strongly suggest you make your son figure out his own financial aid situation and NOT borrow a PLUS loan. Check this: https://www.forbes.com/sites/robertfarrington/2014/07/14/parents-stop-taking-out-loans-for-your-childs-college-education/#305f9ef960a6
Kay M True says
All my school loans are held with FedLoan Servicing. I have been in an IDR plan since 2015. My payment amount is zero due to my income and has since on IDR.
My question, my elderly mother wants to give me her home which is totally paid for. Can and will they take house if she does this in order to pay some of my debt off. I live with her now.
Robert Farrington says
If your payment amount is $0, then you’re paying the full amount – and you’re not in default. They only “come after you” if you default on your loans by not making payments.
Peter west says
Robert,
I have been on an IBR payment plan for several years. It is estimated
that in 13 more years that I would meet the 25 year max and face that horrible tax that comes afterwards. In regards to insolvency, my student loan is 159,000 originating from 99,000. Currently, I am paying a mortgage on a home worth 137,000 purchased for 120,000. I have been making all necessary payments to my student loans monthly (never late). I am trying to save up for the tax. I only have 2000 in the bank and just started a 401 (1000) 100 monthly. In calculation tax from insolvency, will I lose my home since is an asset or is that only to see taxes due. My goal is to save approximately 45,000 for taxes using income from 13years and paper routing.
Robert Farrington says
Here’s a good article on the insolvency piece and how to calculate it: Insolvency and Student loans.