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Loan repayment contract between parent and child

'rentof2'rentof2 4274 replies53 threadsRegistered User Senior Member
A soon-to-be college grad is being asked by his parents to enter into a formal contract where he agrees to pay off a significant portion of the loans the parents took out over time to help pay for his college costs. He also has his own max in student loans, on top of the portion of his parents' loans they are requiring him to repay. Apparently this was something they believe he agreed to verbally back when he was starting college, while he remembers a conversation about it, but not that it was actually something he'd definitely agreed to at the time.

I'm not so interested in whose memory is more accurate or whose self-interest is served one way or the other... but I'm wondering, even if he did sign this contract his parent has drawn up, would it really be binding? I mean, I know as far as the lenders are concerned the parents' loans are the parents' responsibility, but if he signed the contract to pay back his parents a certain amount of money over time, could they then sue him or something if he failed to do so?

I think the whole thing is kind of creepy and the parents are exploiting the bad situation they put both themselves and their son in by agreeing to that much debt when they had the life experience to know better... but I'm just wondering if they're even standing on legal ground.

The parents have a pretty high income, by the way, and the student would end up with an enormous debt if this arrangement works out the way the parents want it to.
edited March 2013
21 replies
Post edited by 'rentof2 on
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Replies to: Loan repayment contract between parent and child

  • cptofthehousecptofthehouse 29210 replies57 threadsRegistered User Senior Member
    A student like anyone else is an adult when it comes to contracts and so, yes, if his parents do it up like a binding , legal contract and have it signed and notarized, they can enforce as any such contract of the sort can be subject to the rules of that state on these sort of things.

    But you know all of those dunning letters creditors send out and those phone calls people get who are bill collectors? There is a reason for all of that. Even with a legally binding contract to pay, getting the money is a whole different thing. There are also stringent rules on how one can get the money and it's not pretty or cheap.

    If this is going to be a reality, and if the student truly has intentions of repaying the loans, the contract should be written in terms that are make it so that the repayment has some relationship and contingency to his ability to pay. The contract is not going to help the parents regarding the loans they took out, as federally backed school loans cannot be reassigned and the lenders won't give a dang that ANYONE owes the borrower in terms of extracting the terms and money that the loan documents spell out. However, it may put the loan fresh in the student's mind, that it is something repayable.

    His parents can also change their will so that whatever they feel is owed to them by this student is taken out of what was originally to go to him or disinherit him altogether if he refuses to sign and pay for the loans.

    Funny, how people tend to forget the exact terms of repayment of loans until the time come to pay. Even more funny, in an unfunny way is how desperate one sees students and parents are to borrow; they'll sign almost anything when they want the money, (just look at the posts here with students desperately trying to borrow huge amounts) and they they won't repay them, don't want to repay them after they get the mohey. There is this book called the "Pied Piper of Hamlin" that is interesting reading.
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  • swimcatsmomswimcatsmom 15835 replies346 threadsRegistered User Senior Member
    I'm not a legal expert but wonder if it would actually be binding. From my couple of classes related to contract law, I recall that a major requirement for an enforceable contract is that there must be "consideration" - the parties must exchange something of value. Also there are all sorts of rules about "past consideration" not being valid consideration for a contract. It seems doubtful to me that a parent can have borrowed money in his own name to pay for college in the past and now make any sort of binding contract where the son would be obligated to repay them.

    Of course, my opinion probably falls under the "a little knowledge is a dangerous thing" category (i.e I don't know what the heck I'm talking about). One thing I am sure about, as far as the lenders are concerned the parents are the ones responsible for repaying them. The won't give rat's tail about any "contract", enforceable or not.
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  • partyof5partyof5 2555 replies125 threadsRegistered User Senior Member
    yes, if you agree to pay your parents back, not pay back the original loan, it is enforceable in a court.
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  • brendank21brendank21 229 replies1 threadsRegistered User Junior Member
    I don't know if it would be binding or not, but would the parents really sue?

    Even if they sue the problem is getting paid. A judgement is just a piece of paper.

    I am assuming this was for a large amount and now the consequences are starting to settle in. If the parents don't pay it will affect THEIR credit, not the kid's. Chances are they are not in a position to make this extra payment each month.
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  • mom2collegekidsmom2collegekids 84004 replies1012 threadsForum Champion Financial Aid, Forum Champion Alabama Forum Champion
    From what I've seen on court shows...lol......it would not be binding to the LENDER. The written contract can't be changed without their agreement in writing. What has been signed within the "four corners" of the loan contract is what matters. If the child reneges on paying the parents, and the parents can't/won't pay the lender, the lender can't go after the child, the parents are still obligated.

    However, if the parent and student entered into some contract between the two parties that the parents were lending the child the borrowed money, and the child is supposed to pay XX amount back, that would between them and would likely hold up.

    So, I would say this...If I borrow $10,000 from the bank, I owe the bank $10,000. If I lend that borrowed money to my child (in writing), then he owes me for that money and I can go after him if he doesn't pay according to our agreed-upon terms. But, I still have to keep the bank loan current regardless of what my child pays.
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  • sosomenzasosomenza 2091 replies31 threads- Senior Member
    Law: If properly executed, the contract could be binding. I say could be because in case of litigation a judge or arbitrator would still have to side with the parent to be enforceable. Btw if the parents guaranteed the loans, the side contract would not relieve them of the burden of paying.

    Reality:If the kid deafaults on the school, he will likely default on the parents.
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  • njmissy13njmissy13 159 replies10 threadsRegistered User Junior Member
    The parents are legally obligated to pay the loan to the lender. Unless the child signs, they are not legally obligated to pay the parents. IF the parents wanted a contract for the loans they were taking out they should have had the child sign prior to each loan being taken. If I were the child, I would not sign anything after the fact. He is being 'asked' by his parents to enter a contract - just say no. He can give them money if/when he has it - if he thinks he made some kind of verbal agreement 4 years ago - but he shouldn't sign anything. The parents would have to sue to get the money if he signed and didn't pay. Don't know if they would or not - some parents would, others wouldn't. Changing the will - noting the reduction by the amount of the 'loan' would make sense. That's what my parents did when they helped one or another of us.
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  • kayfkayf 4088 replies73 threadsRegistered User Senior Member
    The loans the kid actually owes to the school cannot be foregiven in bankruptcy. The loans to parent can. Suspect higher chance of default on parents.
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  • MommaJMommaJ 5575 replies189 threadsRegistered User Senior Member
    swincatsmom is correct (lawyer speaking here)--OP's question was whether this contract would be enforceable against the child by the parents, and the answer is that it would not be enforceable due to lack of "consideration". It would be a different story if the promise to reimburse the parents had been made at the time they took the loans. Too late now. The child is getting nothing in return for his promise to pay, so there is no contract. Legally, the proposed document is meaningless piece of paper. Morally? That's another issue entirely.
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  • 'rentof2'rentof2 4274 replies53 threadsRegistered User Senior Member
    Thank you all for your responses. I had some niggling notion back in my brain somewhere that related to the "consideration" factor, but couldn't dig it out of my aging grey matter. ;)
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  • lmkh70lmkh70 803 replies173 threadsRegistered User Member
    The student should not sign it. Fact is, the parents were far older and should have known better. I think the student should refuse to sign it. It could be legally binding, and likely would be.

    Where I live, the parents could put a lien, without suing, on the student's future house and any other property, in an attempt to collect the debt. That is the law in Texas. We dealt with this issue before, when a contractor tried to falsely put a lien on our home. It is very easy and cheap to put the lien on, expensive to remove it. And it is on the burden of the home owner to try to get it removed.

    If you are the student, do not sign this paperwork. Don't! Just because they are your parents, does not mean they are neccesarily trying to do right by you. They know they legally owe on these loans. THEY took them out, this is their responsibility.
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  • lmkh70lmkh70 803 replies173 threadsRegistered User Member
    I should add too, that a proposed document after the fact would still be valid.

    My mother-in-law (not my husband's real mother, and a true monster indeed) tried to get my husband to sign papers of debt to her a few months ago. In our case, she made all sorts of threats as to what would happen to us if my husband did not sign. I ended up having to get a lawyer, to explain to my husband that if he signs then, then she can really make him pay, or take our assets. The court will not care that the contract was signed after the money was received. They will only care that it was signed. And because the student is of age now, and a college educated adult at that, the courts will not just dismiss a document signed now.

    If you are the student, so not sign. If you are the parent, stop asking your child to sign. When you agreed to take on those loans, in your name, and then just said, hey, my not even graduated from high schooler claims he will be able to afford to pay me back some day and will pay me back, was just rotten. You should have known better. Stop doing this to your child. Take responsibility for your own debt.
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  • lmkh70lmkh70 803 replies173 threadsRegistered User Member
    I want to add, this is going to be hard on your friend. Really hard. Because it is very hard to do something that will really upset the parents, and potentially have the parents cut you out of their lives, or just be mean all the time over it. But, if your friend does not stand up for himself, his entire future is at stake. The contract WILL be legal. They can come after him. If they already have more money than him, they will be in way more of a position to sue him to enforce the contract than he will be to defend himself. When he tries to marry, have children, buy a house, none of that will be possible because he has this huge debt hanging over his head. Or at least it will be somewhat miserable.
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  • sosomenzasosomenza 2091 replies31 threads- Senior Member
    Law: Re Consideration: Depends if and when son promised to pay. If he promised to pay at loan's inception that should be good enough to contract. If he promised after the fact, very good points about past consideration.

    Reality: The contract (if it is a contract) seems to be little more than a just in case agreement. E.G. Just in case you get a job and make it big-please pay your student loans.
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  • dodgersmomdodgersmom 6467 replies846 threadsRegistered User Senior Member
    (1) If he wasn't yet 18 at the time of the supposed verbal agreement, there's no binding contract. Period. Regardless of what anybody intended.

    (2) The parents would have to prove the existence of that past agreement in order to enforce it. Under the circumstances, I think it highly unlikely that a supposed verbal agreement would ever hold up in court.

    (3) Any contract he entered into now would not be binding, due to lack of consideration . . . but why go looking for trouble? He should just refuse to sign.

    The student should tell his parents that he'll try to pay them back if and when he is able. He should not sign anything. He should not agree to any payment terms. If they don't like it, let them take him to court.
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  • swimcatsmomswimcatsmom 15835 replies346 threadsRegistered User Senior Member
    swincatsmom is correct (lawyer speaking here)--OP's question was whether this contract would be enforceable against the child by the parents, and the answer is that it would not be enforceable due to lack of "consideration".
    Nice to know I actually learned (and understood, sort of) something in one of those non accounting classes they make accounting majors take! :D
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  • 'rentof2'rentof2 4274 replies53 threadsRegistered User Senior Member
    I did suggest, too, that the student not sign... but he is concerned that his parents will freak out or reject him emotionally or something if he doesn't. I think the parents do want some repayment, but I think there are some complicated emotional/obligation issues going on too.

    Swimcatsmom, I had to take a business class in my accounting program too... sad that I retained so little of the contract stuff!
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  • LasMaLasMa 10768 replies138 threadsRegistered User Senior Member
    I think there are some complicated emotional/obligation issues going on too.

    That would be my guess too. It doesn't sound like a situation where they can all just go out to dinner and work something out where he agrees to pay them what he can, when he can, without worrying about legalities.

    The unfortunate thing is he might very well be right -- the parents might react badly if he refuses to sign. But then, if he does sign, he's got a crippling debt load for the foreseeable future, not to mention eternal resentment toward his parents. It's a rock and a hard place. Since there are no good options, IMO he needs to do what's best for himself and not sign, with the sad knowledge that it could very well cause a breach. Poor guy. :(
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  • dodgersmomdodgersmom 6467 replies846 threadsRegistered User Senior Member
    Y'know, 'rentof2, you said he's a "soon-to-be college grad." What I'd suggest is that he ask his parents if they wouldn't be willing to postpone this conversation until he actually graduates and knows what his next step is going to be.

    Is he getting a job? Is he going on to graduate school? Once he actually has that job, or has been admitted to grad school, he'll have a much better sense of what he's actually able to do. Maybe he can agree to $50/mo. payments without overburdening himself. Or maybe he can't. But even if he were willing to enter into some sort of agreement, trying to do it before he has definite postgraduate plans seems premature.
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  • MommaJMommaJ 5575 replies189 threadsRegistered User Senior Member
    I think the son needs to tell to his parents that formally committing to huge debt will affect his credit rating (whether it actually will or not) and disable him from financing a car, renting an apartment, etc., but that he will repay them to the extent he is reasonably able to do so.

    I'm not buying the memory problems here. It seems highly unlikely that the parents placed such a huge financial obligation on the son, and the son accepted it, yet this was done so casually that memories are foggy and it never came up again until now. Someone is fibbing.
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