THE BLOG

My Father Won't Pay His Parent PLUS Loan

02/02/2015 04:26 pm ET | Updated Apr 04, 2015

Dear Steve,

My Dad took out a PLUS loan for me because I had reached the maximum loan allowance from my college as a "dependent" student, even though my parents did not support me in any way.

He chose the maximum loan amount $18k (YIKES) and ended up using $3k to lease a new fancy car that he couldn't afford. My dad is NOT financially responsible at all.

He filed bankruptcy recently and I know for a fact that he didn't bring up the possibility of discharging this loan with his attorney.

I pay for this loan (out of guilt?) and the payments are $249/mo for 10 years. I try to pay more if I can afford it but I have other loans that are actually in my name that I am trying to pay off as well, so I usually just pay the minimum. Anyways, I filed my taxes today and including the student loan interest 1099 for each loan under my name, granted me a refund on my tax returns.

But I cannot enter the student loan interest that is under my father's name ($1499) on my tax returns even though I'm the one paying it off.

So I contacted my dad asking him to include it with his tax returns and he says to me "I'm not getting a refund this year as the bankruptcy court is taking whatever I get back. I already filed my taxes and once I receive it I have to turn it over to the courts." And this just really sucks for me.

It sucks because I've been making the payments, that I can barely afford that are under his name and I can't even get a tax break from it. I get nothing because he filed bankruptcy and the loan is going to remain under his name. I cannot get the loan transferred to my name, and it also cannot be consolidated with my other federal loans.

Am I really just supposed to keep paying so much money towards his loans to get nothing back every year because of his lack of financial responsibility?

It seems unfair to me. I didn't mind until this whole tax thing. I just don't know what to do.

Amanda

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Dear Amanda,

It sounds like your father took out a Parent PLUS loan and got his hands on some of the money and blew it.

I completely understand your guilty feelings. You might feel as if you got the benefit of the loan and your dad is walking away from his responsibility. However, I think your guilt is a bit misdirected.

Your father entered into an agreement with the U.S. Department of Education to borrow money under his name. He took the money and used it as he saw fit. Apparently that meant using it toward a car lease. Not smart at all.

The loan is not your responsibility, and you have no obligation to make any payment on it. This is your father's loan. He is an adult. And even if you had some agreement to repay his loan for him, you had no hand in his misuse or misappropriation of the funds. He could have sent back any extra money not used for your education, and it would have come off the balance owed.

You can stop making loan payments and direct anyone who calls to your father so that he can deal with this debt. This loan can't be transferred into your name, and you could not consolidate it. And the primary reason is that this is not your debt.

Your father could have raised the issue with his bankruptcy attorney, but it appears he elected not to. That's not on you. This is a terrible financial situation manufactured by your father, not you.

Just as an aside, if this had been a private student loan instead and he'd used the money for non-educational expenses, that part could have been discharged in bankruptcy.

If you want to pay the money back, you should make payments to your father, not the student loan servicer. Your father is the one obligated for the payments to the servicer, not you. How much confidence do you have that he'd actually make the payments?

The reality here is that you are just helping enable his past poor financial behavior. I know it's going to be emotionally hard to stop making the payments and drop the loan back in his lap, but unless he steps up to accept his responsibility for the loan, you only have one other choice -- to keep doing what you are doing -- and that's not working out for you.

Before I go, I wanted to leave you with three easy action items to jump on right now to address your situation. Just click here.

Steve

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