Some College Graduates Pay Their Parents' Loans

Direct PLUS loans taken out by parents are being paid by students

Shaun Plum
MoneyTips Contributor

Borrowing Student Loans

Some College Graduates Pay Their Parents' Loans
September 8, 2016

In order to pay for their children's tuition, a number of parents take out PLUS loans. These are a type of student loan that the student's parents take out instead of placing the burden of debt on their children. About one out of every six students has a parent or parents who have taken out a PLUS loan to help finance their education. However, a number of these parents are not paying back the loans. Instead, the students end up making the monthly payments in many cases.

These graduates are under no obligation to make the loan repayments, but many understand the difficulties their parents face and feel responsible for the debt, because it was incurred to help them finance their degree. Some do so out of a sense of guilt because they know that if the loans are not paid back, their parents might face wage garnishment, lose their tax refunds, and have their credit history damaged.

One issue with PLUS loans is that there is no limit on the amount of money parents can borrow. Students are capped at $31,000 in federal loans to fund their undergraduate degree, but parents are allowed to take out enough in loans to pay for the remaining balance after other types of financial aid are subtracted. There is no limit on the number of children parents can do this for, making it very easy for them to get into too much debt.

Find out quickly at what rate you can refinance your student loan.

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