Does Filing a FAFSA Obligate You in Any Way? Are Parents Responsible for Repaying a Child's Student Loans?
June 20, 2011
I have a question about filling out a FAFSA form for my child. If we fill out the form and my child is granted a loan for college, will the parents be cosigners or responsible in any way for their child’s loan either now or in the future? — D.F.
No. The Free Application for Federal Student Aid (FAFSA) is the first step in applying for student financial aid from the federal government, from the state government and from many colleges. You would have to take additional steps before you could be held responsible for repaying education loans.
Filing a FAFSA does not obligate you or your child in any way. In particular, you do not have to accept the education loans. However, if you do not accept the loans, the college will not increase the other forms of financial aid to compensate.
If you do not file the FAFSA, your child will not get any grants or most other forms of financial aid.
The FAFSA is a prerequisite before your child can get student loans, such as the Federal Perkins loan and Federal Stafford loan. Only the student is obligated to repay these loans. Parents are not responsible for repaying their children’s federal student loans and cannot cosign these loans. If the child defaults on a federal student loan loan, only the child’s credit is ruined. Federal student loans are not reported on the parent’s credit history.
Parents are not responsible for repaying their child’s federal student loans even if the child is or was underage. Federal student loans are not subject to the defense of infancy, per sections 484A(b)(2) and (3) of the Higher Education Act of 1965.
The FAFSA is also a prerequisite for the Federal Parent PLUS loan starting with the 2011-12 award year. The Parent PLUS loan is borrowed by the parent of an undergraduate student to help pay for the student’s college costs. Only the parent is responsible for repaying a Parent PLUS loan, but there is no obligation to borrow a Parent PLUS loan. (Some parents will enter into a side agreement with their child where the child agrees to make payments on the parent’s Parent PLUS loan. But late payments on a Parent PLUS loan will still be reported on the parent’s credit history.)
Private student loans, also known as alternative student loans, often require a cosigner such as a parent. If a parent is willing to cosign a loan, it increases the student’s chances of getting the loan and may yield a lower interest rate. Eligibility and interest rates are based on the higher of the two credit scores. But a cosigner is a co-borrower, equally obligated to repay the loan. Late payments and defaults on a private student loan are reported on the credit history of both the student borrower and the cosigner. Often lenders of private student loans will start seeking payments from the cosigner after the student is just a few days late in making a payment. Even if all of the payments are made on time, the cosigned loan will still show up as an obligation on the cosigner’s credit history. This can sometimes affect the cosigner’s ability to get additional credit, such as a home mortgage, since the cosigned loan will be counted in the cosigner’s debt-to-income ratios.
But submitting the FAFSA does not obligate you to borrow a Parent PLUS loan or to cosign a private student loan. Only if you sign a Master Promissory Note (MPN) for a Federal Parent PLUS loan or cosign the promissory note for a private student loan will you have any obligation to repay that loan. The promissory note is a legal contract between the borrower/consigner and the lender, in which you agree to repay the loan. If you do not sign a promissory note, you are not obligated to repay the loan.
If you do not file the FAFSA, your child will not be eligible for most forms of student financial aid, such as government and college grants and student employment programs like federal work-study. The college cannot grant a student a dependency override just because the parents refuse to complete the FAFSA and/or because the parents refuse to provide support, even if the student lives on his/her own and is self-supporting. The college’s financial aid administrator does have the authority to offer a dependent student unsubsidized Stafford loans if the parents have refused to complete the FAFSA and have ended financial support for the student. But this student will not be eligible for other forms of financial aid.