When I graduated high school, I was pushed to attend the best school I could find, and not worry about the money. I was 18, of course I was going to do whatever my parents told me to do. I was told there are plenty of loans, grants and other options to pay for school now, and to worry about paying back after getting a steady job. I graduated from a private out of state college in 2013. The school did a lot of shady things to increase the amount I had to pay each year, totaling about $45k for my fourth and final year there. I am currently $127,000 in student loan debt, but $97,000 of that is not in my name.
I was encouraged by my father to take out as many loans as possible because we could not afford to pay anything out of pocket. Absolutely NO amount of money was paid to the school out of pocket for my education, it was all loans. For three of the years, my dad took out about $35k in Parent PLUS federal student loans, totaling about $106k. The understanding was that he would help as much as he could, but that I would be paying it back. I was told repeatedly that the debt would not add up too bad, and I would have no problem paying it off after college.
I am now employed full time in Maine as a paralegal. I have two loans that I am paying back in my own name. One is through Navient at a total of $7,500 (10.5% interest) which I pay $250 a month for. The second is a federal loan serviced by Great Lakes, down to about $22,000 (5-7% interest) which I am paying income based at about $200 a month. The real kicker is the Parent PLUS Loan, currently totaling about $97,000 (8.5% interest), for which I pay $760 a month. So in total I pay about $1,200 a month, just for student loans, and only take home around $2,200 a month in income.
My dad refuses to make any payments on the PLUS loan, citing that he doesn’t have any wiggle room in his budget. He claims that he and his wife are broke, and uses fear, intimidation and guilt to force me to pay. I know that legally the loan is his and he is fully responsible for repayment, but I can’t in good conscience abandon paying it altogether. After months of begging, he did look into applying for income driven repayment. He found that he “makes too much money” and that the payment would actually increase if he were to switch to that plan.
With my rent, insurance, car repairs (my car, thankfully, is fully paid off, but getting old and frequently in need of major repairs) and other miscellaneous expenses, I am in the negative every single month. Some extra expenses pop up sporadically, and I’m starting to run up some credit card debt. I currently have about $2,500 in credit card debt, which doesn’t sound like much, but I used to carry a zero balance on both of my cards. With more upcoming expenses, including new tires and car registration, I’m expecting my credit card debt to continue increasing.
My credit score is great, currently hovering just about 760, but it is starting to see the negative effects of the credit card debt.
I can’t help but feel absolutely stuck. I have no wiggle room in my bills, and don’t spend anything extra. I do have a very supportive partner who pays more than half our monthly rent and all of the utility bills. I haven’t had any “spending money” in years. I’ve applied for dozens of part time jobs, but am unable to find anyone willing to work around my full time work schedule.
I feel as though I’m going to be stuck paying this PLUS loan for the full 30 year period. I feel hopeless that I will never be able to afford a new car, a home, or to have children. I have no savings, and only have about $1,000 in an IRA from employer contributions. I’m drowning in student loan debt, and I feel that I will never be able to move forward.
What realistic options do I have to be able address the high monthly payment of the Federal Parent PLUS loan? I just need to be able to make ends meet every month and put a stop to the credit card debt before that grows any more. Is there ANYTHING I can do, or am I just plain screwed?
So as an outside third-party, let me give you my assessment of how I see your situation.
Your father advised you to take out the loans. Your father encouraged you that the debt was okay. Your father personally guaranteed the loans and took them out in his name. Your father set you up for failure.
I don’t know your father and he’s probably a loving parent. My criticism is not about him as a parent but his actions as a financial adviser.
This situation will eventually lead to a painful confrontation but you already know the facts that the PLUS loans are not your loans and you are not legally responsible for the debt. Your father’s position is he encouraged you to go into debt to get a degree in a field that can’t support the debt. It’s like he took out a loan to buy you a Rolls Royce when you work at 7-11. It never made sense. The math never added up.
And even though the debt is his sole legal responsibility he appears to be willing to “force” you to sacrifice your life and financial safety to struggle to repay his debt.
He’s got an option to deal with the debt. It’s called the Income Contingent Repayment plan. I find it interesting that he claims to make too much money to reduce his payment and too broke to pay. It can’t be both ways unless he is overextended in other ways. If so, that is his personal issue.
The path you are on now is financial suicide. By your own admission you are unable to make ends meet and those other obligations are slowly landing on a credit card. The balance might be $2,500 now but it will be $20,000+ in the future as you continue to go negative each month.
The reality is your father took out the loans in his name and personally guaranteed them. The loans are not your responsibility. He took out these loans hoping you would be able to afford to pay them back. You can’t.
I absolutely don’t want to come off as angry but who was the adult in this situation? He was. Just because he took out the loans and wanted to emotionally assign them to you, that does not change his legal liability for the debt. He made bad choices and is forcing you to pay for his mistakes.
What I know for an absolute fact is we need to get you back to a position where you can make ends meet, pay off your credit card debt and start saving for retirement. Anything left over after than you can direct towards the PLUS loans.
The time you waste not saving for retirement or participating in an employer sponsored retirement program will wind up costing you massively in lost retirement. Use my calculator.
You can get a little bit of breather room maybe by dropping your federal loans into a new Direct Consolidation Loan and opting for an income driven repayment. But there are consequences to be aware of.
Maybe for now the better approach would be for you to stop making the payment directly on the PLUS loans. Instead, direct what, if any, you can afford to pay to your father and tell your father to take over being responsible for making his payment on his loans.
Let’s look at what the Department of Education has to say about Parent PLUS Loans and what he should have understood as the adult here.
“A Direct PLUS Loan made to you as a parent cannot be transferred to your child. You are responsible for repaying the loan.”
“You must repay your Direct PLUS Loan even if your child doesn’t complete or can’t find a job related to his or her program of study, or if you or your child are unhappy with the education you paid for with your loan.”
Let’s look at what your father voluntarily agreed to when he took out the Parent PLUS Loan. The Master Promissory Note says, “I promise to pay to ED all loan amounts disbursed under the terms of this MPN, plus interest and other charges and fees that may become due as provided in this MPN.” It goes on to say, “If I do not make a payment on a loan made under this MPN when it is due, I will also pay reasonable collection costs, including but not limited to attorney’s fees, court costs, and other fees. I will not sign this MPN before reading the entire MPN, even if I am told not to read it, or told that I am not required to read it. I am entitled to an exact copy of this MPN and the Borrower’s Rights and Responsibilities Statement. My signature certifies that I have read, understand, and agree to the terms and conditions of this MPN.” – Source
The bottom line is you do not have the authority to enter any reduced repayment arrangement on the Parent PLUS Loan because it is not your loan. It is legally not your loan.