Who is Responsible for Parent PLUS Loans in a Divorce?

Even if you live in a community property state or the divorce agreement orders your ex to pay back the loans, the parent who borrowed the PLUS Loan remains liable for the debt in a divorce.

Of all the things that need to be sorted out in a divorce — who gets the house, how much alimony will be paid, how to split retirement accounts, and so on — determining responsibility for Parent PLUS Loans is the easiest. The person who signed the promissory note, i.e., the borrower, is the one who’s legally responsible for paying the loan back. Your state’s laws won’t override that. This is true even if you live in a community property state or a judge orders your ex to take over the loans. The loan servicer and the U.S. Department of Education will continue to seek payment from the parent who borrowed the PLUS Loan.

The only way to avoid having to repay Parent PLUS Loans after your marriage ends is to have your ex refinance the loans in their name or transfer them to your child. But this comes at a cost, and eligibility depends on the borrower’s credit score and income.

Keep reading to learn more about divorce and Parent PLUS Loans.

Learn More: Parent PLUS Loan and Retirement: Forgiveness and Repayment Options

Nothing happens to Parent PLUS Loans in a divorce. The person who filled out the FAFSA paperwork and signed the promissory note remains responsible for repaying the debt. The lender will continue to hound the parent-borrower for payment. The divorce decree doesn’t change that responsibility. Nor does the fact that you may have been a stepparent to the child you borrowed the loans for.

Until the parent loan is paid in full, the lender will continue to remain payment from the parent who took out the loan.

Related: Am I Responsible for My Spouse’s Student Loans?

Biological, adoptive parents, and stepparents (as long as they are married to a custodial parent with their financial info on the FAFSA) are eligible to take out Parent PLUS loans. The responsibility for these loans falls on the parent or parents who took out the loan, and the loans cannot be transferred directly to the child.

While Parent PLUS loans can be useful, they also have the highest interest rates of all Federal Direct Loans. These loans don’t offer the same repayment plans and protections as other loans. This means most income-driven repayment plans and deferment options may not be available.

The parent who borrowed the PLUS Loan is responsible for the loans in a divorce. Living in one of the community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin — doesn’t automatically shift responsibility from one spouse to other. As I shared above, the lender will continue to demand payments from the parent who signed their name on the promissory note. But living in one of those states could lead to a judge ordering the spouse who didn’t borrow the loans to make some or all of the monthly payments due to the loans being considered marital debt.

Related: Are Student Loans Community Property?

If the parent refuses to pay, the servicer will keep billing the parent who took out the loans. That parent has two options: make the payments or refuse to pay. The first choice protects their credit score and keeps the loan from defaulting. But it forces them to pay a bill that someone else has been ordered to pay. The latter will not only result in late payments being added to their credit report, but it’s also possible that their wages will be garnished.

Whatever option they choose, the parent could head back to court and ask the judge to hold the other parent in contempt for violating the divorce agreement. But this won’t remove the late payments from their credit history. The only way to do that is to make the monthly payments. Read more about student loan debt and divorce.

There are three things you can do to manage Parent PLUS Loans after your marriage ends:

• Stretch the repayment term from 10 years to 25+ years by moving from the Standard Repayment Plan to the Extend or Graduated Plan.*

• Switch to the Income-Contingent Repayment Plan.*

• Transfer the loans to your spouse or child by having them refinance the debt with a private lender — more on that option below.

Filing student loan bankruptcy is another option. But getting rid of parent loans through that process is challenging. Federal student loans come with unique benefits like access to income-driven repayment plans, deferments, forbearances, and student loan forgiveness after 20+ years of payment, all of which make them much more difficult to discharge in bankruptcy than private student loans.

Ultimately, the best choice for you depends on your loan balance, salary, and how close you are to retiring.

Related: Can Parent PLUS Loans Be Discharged in Bankruptcy?

* Parent PLUS Loans must be consolidated into a Direct Consolidation Loan before they can be repaid under the Extended, Graduated, or ICR Plan. You can consolidate your loans into a Direct Loan on the Federal Student Aid website, StudentAid.gov.

There’s one way you can ensure you won’t be the parent stuck paying back the Parent PLUS Loan: Transfer the loan to your ex-spouse or your child.

Doing so isn’t straightforward or risk-free, however.

The Education Department won’t let you consolidate the loans into their name. Your ex or child will instead need to refinance the debt with a private lender. When they do that, they’ll lose access to federal benefits such as the Public Service Loan Forgiveness Program and President Biden’s $10-20k cancellation. But snagging a new loan with a lower interest rate can take the sting out of losing those opportunities.

Related: Can Parent PLUS Loans Be Consolidated?

The best person to take over the loan — your ex or your child — ultimately depends on whose willing to carry the burden.

Learn More: Can I Transfer My Parent PLUS Loan to my Spouse?

In the last months of your marriage, fighting over your debts will probably feel trivial. You might even be tempted to ignore the problem until the divorce is final. Don’t. Parent PLUS Loans present a real threat to a financially fragile post-divorce single parent. Understanding what happens to Parent PLUS Loans when you divorce is key to protecting yourself and your family.

Speak with a student loan lawyer about your options, whether you’re considering refinancing or just needing help choosing a repayment plan that works for you.

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