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Parent PLUS Student Loans During Divorce — What You Should Know 

Sometimes happily ever after… isn’t so happy. Things get ugly, grow stale or just change — and there are divergent paths that ultimately lead to divorce. If you took out a Parent PLUS Loan for your child, you might be wondering what happens to student loans in a divorce.

About Parent PLUS Loans

First, let’s review a bit about Parent PLUS Loans and how they work. These federal student loans are offered to parents of undergraduate students to help pay for the cost of attendance. Though the student loans pay for the child’s college expenses, the parent who took out the loan is solely responsible for it.

Parent PLUS Loans come with steep interest rates — the highest out of all federal Direct loans. There are also fewer repayment options available for parents. A Parent PLUS loan borrower can repay loans with the following repayment plans:

  • Standard Repayment Plan
  • Graduated Repayment Plan
  • Extended Repayment Plan

If you consolidate your Parent PLUS Loans with a Direct Consolidation Loan, you can become eligible for the Income-Contingent Repayment plan, or ICR for short. This can open the door to loan forgiveness options, like Public Service Loan Forgiveness (PSLF).

You also can’t transfer your loan to your child — though there are loopholes to get around this that we’ll discuss later.

What happens to Parent PLUS Loans after divorce?

Divorce is one of the most stressful life events. When you have debt involved, you could be worried about what happens to student loans in a divorce. Student loan debt and divorce add yet another financial consideration during a split. You might wonder: “Are student loans marital debt?”

But when it comes to student loan debt and divorce, the person who took out the loan is typically responsible for paying the loan, even in divorce. Only one of the spouses can sign the promissory note on Parent PLUS Loans, so technically that’s who is responsible for the student loan in the case of divorce.

“All debts are divided in a divorce,” explained divorce attorney Russell D. Knight. “Usually this means the divorce decree will specifically assign each party specific debts to cover. For example, dad might take over the Parent PLUS Loans while mom takes over a car payment.”

There may be something worked out as part of the divorce, but the person who signed the promissory note is still usually the one liable for the debt. But that doesn’t mean a family court won’t include that debt as part of the expenses and decide it should be covered by both parties.

“Some marital settlement agreements arrange a schedule to pay off loans together but it's very rare,” said Knight.

Additionally, things might be different if you’re in one of the nine community property states. These include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. A divorce in a community property state could mean that assets and debts are divided 50/50, making both parties liable for the debt.

Many divorce cases have levels of nuance that we can’t go into here. If you want to determine for sure whether you’re responsible, consult a divorce attorney.

Managing Parent PLUS Loans after divorce

If you want to make your Parent PLUS Loans more manageable after divorce, you have several options.

The first is that you can take out a Direct Consolidation Loan to become eligible for the ICR plan. Under this plan, your student loan payments are a small portion of your discretionary income (typically 20%).

Also, if you have a remaining balance at the end of the repayment period, it will be forgiven. But you’ll want to prepare for the tax consequences, as the forgiven amount is considered taxable income in the eyes of Uncle Sam. We recommend saving through Betterment if pursuing this route.

If you want access to additional repayment plans, consider using the Parent PLUS double consolidation loophole. This strategy can allow your payments to be capped at only 10% to 15% of your income. But it can be tedious, so you'll need to do some research since your loan servicer won't offer this option. It's also only available until July 2025. After that, the Department of Education is closing the loophole.

Refinancing Parent PLUS Loans

To save money on sky-high interest rates, you can refinance your Parent PLUS Loans. There are a few student loan refinancing companies such as Laurel Road that allow you to refinance Parent PLUS Loans. After a divorce, your finances can be ravaged, so being able to save money anywhere — especially on PLUS Loan interest — can help.

Through refinancing, you may be approved for a lower interest rate. The refinancing loan will be used to pay off your Parent PLUS Loans. So you’re essentially going from federal loans to private loans — higher APR to lower APR. While this can be a good move, approval depends on good credit. Not only that, but you give up federal loan benefits such as income-driven repayment and loan forgiveness programs.

There’s also another alternative if everyone is on board to do it. If you don’t want to deal with the Parent PLUS Loans anymore and your child is willing to both take them on and make the required monthly payment, you could refinance the Parent PLUS Loans into your child’s name. This option is available through several refinancing companies.

This way, you can get the loans off your hands. Of course, your child has to agree to this, and you want to make sure they can get approved and handle the loan. Laurel Road gives you the option to refinance and transfer the loan to your child.

Student loan debt and divorce

Getting divorced is a messy process. Having debt involved can make it even more stressful. But if you have Parent PLUS Loans, the person who signed the promissory note is responsible for the loan. Any other arrangement would likely come from a divorce judgment.

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Comments

  1. Julie Belew February 4, 2020 at 12:31 PM
    Reply

    If one parent refuses the parent plus loan, can the other parent step in?

    • Travis at Student Loan Planner February 5, 2020 at 1:42 PM
      Reply

      If what you mean is that a parent doesn’t want to take it out on behalf of the child? Yes you should be able to step in but you’d have to qualify based on the rules in terms of not having adverse credit events, etc.

  2. Jim M May 6, 2020 at 2:01 PM
    Reply

    Massachusetts. In divorce all Dept and assets to be divided. I was strongly convinced to take out student loans for my ex daughter during our marriage. Soon I solely will be responsible for $670 mo payments. Shouldn’t my ex-wife be responsible for half of her daughters student loans even if I’m solely on Dept ?

    • Travis Hornsby May 6, 2020 at 3:51 PM
      Reply

      Unfortunately Mass is not a community property state, when all assets and debts taken up during marriage would be evenly split. In a non community property state, the debt that has your name on it sticks w you and assets are still split evenly. You should definitely consult with counsel on what your options are in order to negotiate your best available options

  3. Christine February 3, 2021 at 12:17 AM
    Reply

    My divorce isn’t finalized as of yet (New York). I recently took out a Parent Plus Loan for my son attending his first year at college . The loan is due (with interest if not paid before due date) 6 months after he graduates ( 2024). We both agreed we would split cost , 11k). I’m not comfortable with this . What if he doesn’t pay ? How am I protected ? My lawyer is saying he has to pay because it is documented in the divorce agreement. I have advised my lawyer of my issues. Is this protocol? Is this my only option?

    • Amy at Student Loan Planner February 9, 2021 at 2:24 PM
      Reply

      I’d refer you to a student loan lawyer like Jay, Josh, Adam, or Stanley. Here’s their emails below. Each specializes in a different area of the country and in different areas of student loan law:

      Jay (all cases in Cali, West Coast, NY + all default cases): jay@moneywiselaw.com
      Josh (all cases in New England ex-Massachusetts): jcohen@thestudentloanlawyer.com
      Adam (Massachusetts + loan servicer issues): asminsky@minsky-law.com
      Stanley (covers huge swath of Midwest and South): TATE@tateesq.com

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