Parents are not liable for repaying federal student loans taken out by their child, even though families are required to list both the student's and parent's information when filling out the Free Application for Federal Student Aid (FAFSA). However, parents are liable for student loans that they co-sign, including private student loans. There’s also a type of federal student loan, called a parent PLUS loan, that holds parents responsible for repayment since it is taken out by parents in the first place.
Whether parents are liable for student loans depends on the type of loan. Federal student loans, parent PLUS loans, and private loans each have different terms regarding financial responsibility. Let’s look at each loan type in more detail.
Key Takeaways
- Parents are not obligated to repay their child’s federal student loans, even though their information is required for the Free Application for Federal Student Aid (FAFSA).
- Parents may be held responsible for student loan debt if they co-signed a private loan or took out a parent PLUS loan.
- Open communication and financial planning between parents and students can help clarify responsibilities.
Federal Student Loans
Students who want to borrow for school with federal student loans start the process by filling out the Free Application for Federal Student Aid (FAFSA). This form helps the federal government, states, and institutions of higher education determine what kind of federal aid a student is eligible for and how much. Submitting the FAFSA is required if you want federal student loans.
Generally, parents are not liable for repaying federal student loans taken on by a student. This includes direct subsidized loans, direct unsubsidized loans, direct PLUS loans made to graduate or professional students, direct consolidation loans, and Perkins loans.
Parent PLUS Loans
Rules are a bit different for parent PLUS loans compared to other federal loans. These federal student loans are taken on by parents of dependent undergraduate students to cover the cost of higher education.
Unlike most federal student loans for students, parent PLUS loans require a credit check. The borrowing parent, not the student, is responsible for these loans and they can’t pass that responsibility onto the student when they graduate, according to the Consumer Financial Protection Bureau (CFPB).
Private Student Loans
With private student loans, financial responsibility lies with the person who took out the loans. For example, loans taken out by students on their own are the sole responsibility of the student when it comes to repayment.
Since private student loans require a credit check and often have strict requirements for approval, many students need a co-signer to get the funding they need. That's when parents can become liable for repaying student debt. If a student applies for private student loans with a parent as the co-signer, both the student and the parent are financially liable for repayment of the debt.
Pros and Cons of Co-Signing a Private Student Loan
Since many college students haven't established a credit history, having a parent co-sign is a fairly common practice. However, adding a co-signer to a loan has advantages and disadvantages for both the parent and the student.
Pros
Higher chance of approval
Potential for better loan terms
Shared responsibility
Cons
Potential for conflict
Parents could be made responsible for debt
Impact on parent's credit
Pros Explained
- Higher chance of approval: Having a co-signer can help students with limited credit history borrow the money they need to pay for college.
- Potential for better loan terms: Having a co-signer can mean qualifying for lower interest rates, which could lead to considerable financial savings over time.
- Sharing responsibility: Parents who co-sign with their student can ensure shared responsibility for repayment, which they wouldn't have if they took out federal parent PLUS loans instead.
Cons Explained
- Potential for conflict: Borrowing with someone else could easily lead to issues if the parties don't agree on who will make payments on the loan.
- Parents could be made responsible for debt: If a student doesn't repay their student debt, even if they initially agreed to do so, this could leave parents fully responsible for repayment if they want to protect their credit score.
- Impact on parent's credit: Late payments on private student loans can impact the credit scores of both parents and students. The loan will also appear on the parent's credit reports, which could impact their ability to borrow for other reasons.
Parental Financial Responsibility
There are no hard and fast rules when it comes to paying for higher education or sharing expenses. Some parents will want to help pay for school, either through saving for college with a 529 savings plan; covering tuition and fees out of pocket; or borrowing for school with federal student loans, private loans, or both.
Parents and students should discuss their expectations and ways they can both work toward a common goal of paying for a college education.
Legal Considerations
For federal student loans, legal consequences for nonpayment are the same for both students and parents who take out parent PLUS loans. For example, late payments can be reported to the credit bureaus and will lower the borrower’s credit score. The government can also collect on unpaid student loans through wage garnishment and seizure of tax refunds or government benefits checks.
Legal considerations for private student loans are the same. Private lenders may even sell your unpaid debt to a collection agency, and they may also try to take you to court.
Who Qualifies for the FAFSA?
Any student can fill out the Free Application for Federal Student Aid (FAFSA), which unlocks a range of financial aid options like scholarships, grants, work-study programs, and federal student loans. Both students and their parents need to include their financial and tax information on the FAFSA form, even if the parent doesn't plan to help with college expenses.
What Are the Interest Rates of a Direct PLUS Loan?
Interest rates for federal student loans are always fixed, but they do change for new loans originated from one year to the next. For direct loans disbursed on or after July 1, 2023, and before July 1, 2024, the rate for direct subsidized loans and direct unsubsidized loans (undergraduate) is 5.50%. For direct unsubsidized loans for graduate/professional students, the rate is 7.05%, and direct PLUS loans come with a fixed interest rate of 8.05%.
How Can I Take My Parents Off My Student Loans?
If your parent co-signed a private student loan, you can have their name removed by refinancing the loan on your own, if you can get approved. Some student loans also allow for a "co-signer release," which lets students release a co-signer of their financial responsibility for the debt after a set period of time.
The Bottom Line
Parents may or may not be on the hook for repaying student loans. It all depends on the loan type taken out and who ultimately signed the paperwork to borrow money. If a parent takes out a parent PLUS loan or co-signs on a private student loan, however, they’re legally responsible for repayment no matter how long it takes.
This is why families should have a plan when it comes to paying for college and repaying any resultant debt. Whether parents want to help cover the cost or believe their child should pay for college on their own, the sooner this important discussion takes place, the better.
