Dear Penny: Are We Stuck Paying My Stepdaughter’s Illegal Student Loan?

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Dear Penny,

My husband’s daughter from his previous marriage took out a student loan in his name without his consent. We’ve been paying on the loan. Our relationship with her is non-existent.

He recently became disabled, so our monthly income has decreased significantly. Is there any way out of repaying the loan? We have tried repeatedly to reach out to his daughter with no response. We hesitate to renegotiate the repayment, as we aren’t in agreement that it’s truly ours to repay. 

We’ve asked both our servicer and the Department of Education for additional information and voicing our concerns, but there’s been no response. What options do we have outside of paying the loan?


Dear Stuck,

When your stepdaughter took out this loan without your husband’s permission, she probably had to use his Social Security number and sign his name. That’s identity theft.


Unfortunately, there are no easy fixes for this terrible situation your stepdaughter has forced upon the two of you. If she did steal your husband’s identity to obtain this loan, he could file a police report and then submit a copy to the servicer. 


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Of course, most parents are understandably hesitant to take actions that could result in criminal charges against a child, even one who’s estranged. If your husband isn’t willing to report the incident, he’ll have no choice other than to make these payments to keep his credit intact.


Your stepdaughter has shown zero interest in accepting responsibility for her actions, so I think pursuing criminal charges deserves serious consideration. Or if he’s unsure, your husband could send his daughter a message letting her know that he’s filing a police report if he doesn’t hear back from her by a certain deadline. Perhaps knowing that authorities could come knocking will provide her the motivation she needs to start righting this wrong. 


But as long as you two are paying the loan without reporting the matter, this debt is yours. You need to do whatever you can to keep the payments as manageable as possible.


With private loans, you’re at the mercy of the lender as far as repayment options. If your stepdaughter took federal loans, like Parent PLUS loans, in your husband’s name, there’s far greater flexibility. 


Your husband could get some breathing room by taking advantage of the federal student loan moratorium that’s in effect through Jan. 31, 2022. Not only can you skip payments without accruing interest or late fees, you can also request a refund of any payments you’ve made since March 2020. Obviously that’s only a temporary fix, but this break coupled with refunds for up to a year and a half’s worth of payments could provide some relief.


If there’s still no resolution in sight, an income-contingent repayment plan could be an option. Payments are capped at 20% of discretionary income. Any balance that remains at the end of 25 years gets forgiven, though the forgiven amount typically gets treated as taxable income.


You didn’t say whether your husband’s disability is permanent. If so and this is a federal student loan, he may be one of about 485,000 people who recently became eligible for automatic student loan forgiveness. The Department of Education is notifying those who qualify for an automatic discharge through the end of the year, though some people will have to apply to get the debt forgiven.


As the two of you determine your action plan, I’d suggest that your husband be vigilant about monitoring his credit reports. His daughter clearly has the information needed to obtain financing in his name. He should consider a credit freeze, which essentially locks access to your credit report. That makes it so someone else can’t apply for credit in your name.


The ideal solution here would be for your stepdaughter to take responsibility so that you don’t have to involve law enforcement or pay this debt. She’s the one who’s making that impossible. 


This is a situation where your husband may have to choose the least terrible option. And even though you’re impacted, this is ultimately his decision to make. It’s infuriating that I just spent the paragraphs above suggesting ways for your husband to repay a loan that he never signed up for. But unless he’s willing to treat this as a crime, I’m afraid the only solution is to mitigate the pain.


Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].