When Sarah went through college, she assumed the 529 plan her parents set up for her was an act of generosity.

But nearly two years after finishing grad school, she found out what she thought was a gift had strings attached. In her call to The Ramsey Show, Sarah says her parents are now seeking a $114,000 repayment on this 529 plan (1).

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To make matters even more awkward, Sarah’s father — who happens to be a lawyer — brought up a promissory note she signed years ago that states, “I promise to pay my parents all sums paid to me for my secondary education, including, without limitation, tuition, housing, and living expenses.”

Sarah told cohosts Jade Warshaw and George Kamel that the $114,000 was the total balance in the 529 plan, not the amount her parents put in before compound growth. After hearing Sarah’s story, Warshaw didn’t mince words.

“This is diabolical,” she said, while Kamel suggested she let her dad take her to court, adding, “I think this would be a hilarious way to end the relationship with his daughter.”

As Sarah explained on the show, she’s now afraid this new demand will escalate to legal action, and she asked the cohosts how to best communicate with her parents without appearing ungrateful.

Warshaw advised Sarah to just be honest and say, “There is no part of me that understood that I would be paying back this money. If I had, I would not have signed this. And I feel very blindsided by this … and I would like to ask if this can be forgiven.”

Sarah later asked what to do if her parents aren’t so forgiving.

Kamel replied, “I don’t think this would ever hold up in court” if her parents truly sought the entire $114,000 balance rather than just the amount they originally put into the 529 plan. He also suggested working with an attorney to determine whether the phrase “all sums paid” means the final balance of the 529 plan.

But whatever happens with repaying this 529 plan, Warshaw and Kamel agreed that Sarah’s relationship with her parents just turned into a “transaction,” and future Thanksgivings are bound to be way more tense.

Although financing student loans may not be as weird as Sarah’s situation, it’s a common source of frustration. Student debt is now the second-largest form of household debt after mortgages, totaling $1.66 trillion per the Federal Reserve Bank of New York’s Q4 2025 report (2).

That figure isn’t too surprising when you factor in the ever-increasing cost of tuition at universities. When adjusted for inflation, the Education Data Initiative found that the costs for public colleges skyrocketed 312.4% between 1963 and 2025 (3).

The Education Data Initiative also estimates that the average student debt burden now sits at roughly $43,333, including both federal and private loan debt (4). For many graduates, these monthly payments can hold them back from hitting major life milestones.

In fact, a Gallup survey found that 71% of student loan borrowers are putting off at least one major life event. That includes 29% postponing home purchases, 15% delaying children and 13% holding off on marriage (5).

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With such a steep price tag, it’s understandable why more Americans are skeptical about a college education. An NBC Poll recently found that only 33% of respondents said a four-year college degree is “worth it” for the higher lifetime earnings it offers (6).

But there are tools families could use to make debt less of an issue for their children, particularly if they plan early. One strategy is to open a 529 College Savings Plan, like in Sarah’s case. These accounts let money grow tax-free when used for qualified education expenses.

The Education Initiative estimates that 16 million American families already use 529s to help fund college, but it also claims that 54% of parents don’t know how 529s work or what benefits they offer (7).

Another way to save for college is known as a “Parent PLUS loan,” which parents take out to cover gaps after financial aid. Just note that these loans come with higher interest rates and are solely the parents’ legal responsibility. Since the debt can’t be transferred to the student and there’s less repayment flexibility, these loans carry greater risks for parents.

Families may also help by giving money directly, but it’s crucial to distinguish between gifts and loans. A gift has no expectation of repayment and may be subject to tax reporting rules if a gift is beyond the annual IRS limits. By contrast, a family loan should include a clearly understood written agreement, complete with repayment terms to avoid future financial or legal complications.

As Sarah’s case highlights, misunderstanding whether financial help is a gift or a loan can lead to extreme emotional strain.

Misaligned expectations can have catastrophic consequences when financing higher education.

It’s understandable why Sarah assumed her parents' support was an act of generosity, but apparently that’s not how they saw it. Everyone just assumed they were “on the same page,” but those assumptions fell apart when Sarah realized her parents expected her to pay them back.

To prevent ever getting into this situation, discuss expectations and ensure everyone involved understands their obligations. First off, clearly state whether the money is a gift or a loan. If it’s the latter, what are the repayment terms and timelines, and what happens if circumstances change?

Families should also discuss whether there are any stipulations associated with this financial aid, such as minimum grades or college work expectations.

If possible, it’s best to frame these conversations around shared goals and transparency rather than control. Indeed, one key issue Warshaw pointed out on Sarah’s call was the knowledge imbalance between Sarah and her father.

As Warshaw told Sarah, “I’m sensing that there is a balance of power here — I’m going to say of knowledge and power. And it feels — I’m not saying [your father] was intending to — but it feels like he may have taken advantage of that whether intentionally or by accident.”

Before anyone signs a document, take plenty of time to read the fine print and understand the full legal and credit implications. Signing on the dotted line for a student loan creates binding obligations that, if not properly understood, could be the breeding ground for unintentional resentments.

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The Ramsey Show Highlights (1); Federal Reserve Bank of New York (2); Education Data Initiative (3, 4, 7); Gallup (5); NBC News (6).

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.