Welcome to Taking Stock, a space where we can take a deep breath and try to figure out what the COVID-19 economy really means for our finances. Every month, personal finance expert Paco de Leon will answer your most difficult, emotionally charged questions about money. This last two years have forced many of us to reprioritize our finances, and there’s no clear road map for getting through the pandemic yet — but Taking Stock is here to help us figure it out together.
This month, we’re talking through what happens if you decide to stop paying your burdensome student loans — especially if the loan was taken out in your parent’s name. Have you ever stopped making your student loan debt payments? What happened? Did your parents or other family members take out any loans for your education, and did they expect that you would pay them back? Tell us your experience here to be featured in an upcoming Refinery29 story.
What would be the consequences if I stopped paying the PLUS student loan my parents took out when my twin sister and I went to school?
They consolidated both of our loans together, so the interest has been compounding on the sum of both. We’ve each paid over $40,000 (the original cost of the loan), but that’s just the interest — we haven’t even touched the principal. I used to send my parents checks every month, roughly $350 to $400. Then my mother stopped paying our loans for months. It was around $10k. I’m not sure where that money went, but she did make a lump-sum payment after we found out. She has now given us the loan login information so we can “learn how to pay our loans.”
I’m saving up to go back to school. I’ve worked full time since I was 21. I’m finally making the “average” income for my high-cost-of-living city. I’m worried about quitting my job to go back to school and pay for housing and loans while I still have this Parent PLUS payment I feel responsible for. My sister and I have spoken a lot about the responsibility of these PLUS loans. She still wants to pay the cost and possibly pay more to get the principal down even faster, but since our loans are consolidated into one, if I stop paying my portion it would extend this loan further and further and impact her portion of the loan as well.
This process and the anxiety surrounding affording school has made the idea of student loans really stressful. I never want to get into another situation like the Parent PLUS loan from my associate’s degree. I really want to stop paying for it. I have paid for my life since I was 18, have paid off all the loans that were in my name and have separated myself almost completely from my family. I’m scared to stop paying it because I’m worried about how my parents will respond — if they can take any legal action against me and how my decision will affect my twin sister.
My therapist and I are considering going no contact with my parents. I’m considering stopping paying for these loans, since they’re not in my name — but I don’t know the consequences of this. What would happen? Is this something I should attempt?
Dear to pay or not to pay,
There are a lot of layers to your student loan situation. The subject of debt on its own is shame- and guilt-inducing for many people. Having a complicated relationship with your parents, whose loan you are helping pay back, does not make navigating this debt any easier.
I’m not an attorney, and this isn’t legal advice. Since you’re concerned about the legal repercussions of not paying back your parents, I advise you to speak to legal counsel. From a layperson’s perspective, I don’t know what legal recourse your parents have based on a side arrangement. Suppose you had a formal contract, or even an oral agreement between you and your parents that you’d be paying them the amount of the loan. In that case, you’re probably obligated to pay back the loan, but again — check with an attorney.
Even without a solid case, this is America, where we’re free to try to sue anyone for anything. Your parents could file a suit against you and your sister, even though I don’t how successful they would be in winning a case and what that would look like in terms of attorney’s fees and how much of a pain in the ass it would be.
Truthfully, your options seem like trying to decide between certainly being punched in the face (paying back the debt) or possibly being kicked in the crotch (walking away and getting into a legal shitstorm and/or putting your parents and your twin in a financial situation that may damage your relationships with them).
I really wish I could advise you not to pay back the debt because it’s not legally in your name.You definitely could choose that option, given that your mom deposited your checks but failed to make payments — they made the questionable decision of consolidating your loan with your sister’s. You don’t have a good relationship with your parents. You could absolutely justify not paying the money back. And I’m sure many people would agree with your decision.
However, it’s important to think about the uncertainty of the future. While you’re considering going no contact with your folks right now — something I’ve personally done for a period of time — you can’t know for sure whether you might want a relationship with them in the future, or whether going no contact now will mean there’s no hope of having a relationship with them in the future. It’s just something to think about very carefully. But if you need to go no contact to heal and create a healthy boundary, please do it.
One option that may or may not be available because of the debt consolidation is to refinance the loan. This option isn’t without flaws. Refinancing allows you to take on the legal and financial responsibility of the debt by paying off your parents’ loan with a new loan that you receive from a private lender. But again, since you and your sister would both be paying back the loan, you’d probably both need to be borrowers. You would no longer be financially entangled with your parents, though. Of course, you must be able to afford the payments, and your ability to refinance would also depend on your credit score.
There’s also a significant consequence to refinancing with a private lender: the student loan will no longer qualify for federal benefits like forbearance and deferment. And you’ll have new loan terms with your private lender. Your payment amount and terms will be completely new and based on the new principal amount. I don’t know if this is the right option for you, but it’s one to explore.
Another thing to consider is how much longer you think your parents will need to keep paying back this debt. If they are on an income-contingent repayment plan, they may be eligible for loan forgiveness after 25 years of payments. If they’re eligible, you can weigh this option against refinancing. How much would it cost in total until the loan would be forgiven versus how much you’d pay in total for a refinanced loan?
Ultimately, I think this decision is a deeply personal one, especially given the unique circumstances and a family history that I don’t have an understanding of.
Before you decide, I suggest you spend some time reflecting on this debt. Can you afford the payments? If there was a formal agreement, are you obligated to pay this back based on those terms? What does the debt symbolize in the context of your relationship with your parents? What is the energy surrounding your decision to stop paying? Think about the second- and third-order consequences of the actions you are thinking of taking. There is no way to know with certainty how our decisions today impact our outcome tomorrow. The best you can try to do is extrapolate and explore how those consequences would impact your life. Are you prepared to take responsibility for those consequences? Would not paying back the debt help or hinder your ability to heal from your pain with your parents?
One of the best things you can do for yourself right now is to focus on healing any trauma associated with this debt and your parents. Talk therapy is terrific, though you might also want to find other ways to explore any subconscious wounds. You can seek professionals that specialize in this kind of healing, such as hypnosis and psychedelic therapy. And it’s possible to use an accessible tool like journaling to help you access your emotions just below the surface. There are many paths to healing. Once you’re on that journey, you can have greater trust that your decisions about this debt will be coming from a place of wholeness and perhaps even safety, security, and abundance.
Your finance friend,
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