Should I Take Out a 401k Loan to Pay Off My Parent PLUS Student Loans?

by Steve Rhode

Related Articles

Staying Motivated to Continue Digging Yourself Out of Debt

How to Break Bad Financial Habits

Free Get Out of Debt Course


Dear Steve,
I have a balance of approximately $35,000 of parent plus loans that I have taken for three children in college. The interest rate is 8.125%. My balance does not move much due to daily interest. Should I take a 401K loan to pay off these loans? I am 57, and I'll be dead and gone before this gets paid off.


Dear Sabrina,
I would absolutely suggest not taking out a 401(k) loan. With the prognosis for the stock market and the anticipated rates of return, a 401(k) loan would cost you the interest you would pay yourself plus the lost return while that money was out of your account. For example, a 4% interest rate on a 401(k) loan to yourself while the stock market is returning 10% is actually a cost of 14% on that borrowed money.

If your income is changing or the payment is unaffordable, then look at consolidating the parent PLUS loans and drop them into an income contingent repayment plan. This approach may lower your payment, will extend the amount of time you will pay, and may increase the balance to be forgiven in 25 years. See this page.

"This plan is the only available income-driven repayment option for parent PLUS loan borrowers. Although PLUS loans made to parents can't be repaid under any of the income-driven repayment plans (including the ICR Plan), parent borrowers may consolidate their Direct PLUS Loans or Federal PLUS Loans into a Direct Consolidation Loan and then repay the new consolidation loan under the ICR Plan (though not under any other income-driven plan)."

Are you one of the many people heading for debt trouble without knowing it? This simple checklist can help you find out and tell you how to avoid it.

While the solution is not perfect, it is certainly better than robbing your retirement now and losing your return on that money.
Steve Rhode
Get Out of Debt Guy - Twitter, G+, Facebook

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

Take the Next Step:

  • Keep your finances on track by visiting our money section where you'll find tools and resources to help you with your finances.
  • Stop struggling to get ahead financially. Subscribe to our free weekly Surviving Tough Times newsletter aimed at helping you 'live better...for less'. Each issue features great ways to help you stretch your dollars and make the most of your resources. Subscribers get a copy of Are You Heading for Debt Trouble? A Simple Checklist And What You Can Do About It for FREE!

Share your thoughts about this article with the editor.

Get Out of Debt
Stay Connected with TDS

Do you struggle to get ahead financially?

Surviving Tough Times is a weekly newsletter aimed at helping you stretch your dollars and make the most of your resources.

Debt Checklist

And get a copy of Are You Heading for Debt Trouble?
A Simple Checklist and What You Can Do About It
for FREE!

Your Email:

View the TDS Privacy Policy.

Get Out of Debt