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A Federal College Loan Program Can Trap Parents in Debt

JayDubya

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The New York Times

A Federal College Loan Program Can Trap Parents in Debt​


Tara Siegel Bernard
Mon, June 7, 2021, 7:10 AM


Kate Schweizer and her husband didn’t want their two daughters, just 13 months apart, to begin their adult lives saddled with college debt, so they borrowed much of the money themselves. Beginning in 2005, the couple took out a new batch of federal loans each academic year, eventually accumulating about $220,000 in debt.

Today, they owe half a million dollars.

“Even though the cost of tuition seemed insane, I convinced myself that it would all make sense and pay off in the end,” Schweizer, 65, said. “I had hoped that since my husband had a solid, union job, we would — we should — be able to afford this.”

But as they borrowed more each year, their monthly payments began to climb, until they reached $1,500. “We tried repeatedly to renegotiate the interest or the balance, or the payments, any part of it, many times,” she said. “It was ‘No, thanks — put it in forbearance or hardship with 8.5% interest,’ over and over again.”

The Schweizers took parent PLUS loans, which are underwritten by the federal government and have become popular with parents who want to borrow to help pay for their children’s education. Although the Schweizers, who live in the New York metropolitan area, carry more debt than most, many parents have turned to such loans as college costs have rocketed past wage growth, researchers say.

Parent PLUS loans now account for nearly a quarter of new federal borrowing for undergraduates. And while they are still just 6% of the $1.57 trillion in current federal student debt, and can let families of more limited means have their children attend the college of their choice, they can be problematic because they allow families to borrow without regard to their ability to repay.

It’s also easier to accumulate heavier debts, because the only cap on parent PLUS loans is the total cost of attendance, minus any other aid provided. They generally carry higher interest rates than students’ loans, and come with fewer safeguards should a family’s financial situation take a turn for the worse. Only a basic credit check — looking for “adverse” events — is required to get one.

“The parent PLUS loan does not come with an attempt to understand the parents’ ability to repay,” said Rachel Fishman, deputy director of research for the higher education program at New America, a nonprofit research and policy group. “When the federal government is saying you can borrow this loan, and an institution is saying you can borrow this loan, that leads someone to believe that the federal government has done their due diligence. They have not.”

The Education Department views these loans — as it does all student loans — as “instruments of social insurance policy and not traditional debt,” which is why they are not subject to traditional underwriting norms, a spokesperson said.

At the end of last year, there were 3.6 million loan recipients with nearly $101 billion in parent PLUS loans — an increase of about 40% from $72.2 billion (adjusted for inflation) at the end of 2014. In particular, they can be risky for many Black parents, experts said, who have been taking out more of these loans in recent years but who tend to have less wealth.

In 2016, 58% of students whose parents took out parent PLUS loans were white, 19% were Black, and 15% were Hispanic or Latino, according to Fishman’s analysis of federal data. Four years earlier, 15% were Black and 12% Hispanic or Latino. Three-quarters of Black borrowers had adjusted gross income of $75,000 or less in 2016, compared with just 38% of whites.

According to an analysis of federal College Scorecard data, which looked at 2017-18 and 2018-19 graduates, the typical parent borrows $24,416 in PLUS loans. But many borrow significantly more — though the pandemic year was an exception — especially at private colleges that are much more expensive.

At New York University, where the Schweizers’ older daughter studied, as many as one-fifth of students had a parent who took a parent PLUS loan, according to the most recent Scorecard data — which showed that the median total debt at graduation was $74,201.
A spokesperson for the university said it did not recommend the loans and no longer mentioned them in financial aid letters sent to students and their families “so they’re not seen as among the first things to turn to pay for college.”

The interest on such loans can be unforgiving, said Adam Looney, a finance professor and the executive director of the Marriner S. Eccles Institute for Economics and Quantitative Analysis at the University of Utah. If borrowers default on or consolidate their loans — or if they receive a forbearance or a deferment, putting payments on hold — the interest that accrues is capitalized, which means it is added to the principal balance, he said, pushing payments higher. That’s what happened to the Schweizers’ loans, which were consolidated more than once and in forbearance for long stretches.

“Things really spiral out of control for borrowers who face repeated economic or financial ups and downs, especially when they have high-interest loans like PLUS loans,” Looney said.

“For a financially secure, high-income parent that makes automatic payments,” he added, “the loans work fine. But if anything bad happens, it’s a disaster.”

Parent PLUS loans also have fewer protections than other student loans. If borrowers can’t afford to pay, they generally have access only to the most expensive income-driven repayment plan, which requires borrowers to pay 20% of their discretionary income for 25 years; anything remaining is forgiven. Like other student debts, PLUS loans are not automatically discharged through bankruptcy, but require a separate proceeding with more stringent legal hurdles. The consequences of default are serious: The government can confiscate tax refunds and garnish wages and Social Security.

While data on default rates for parent PLUS loans is limited, they are far lower than for loans taken by undergraduates — but still worrisome, student loan researchers said. To keep debts manageable, parents should borrow no more than what they earn in a year — for all children, said Mark Kantrowitz, an expert on financial aid.

“A significant portion of parents are borrowing more,” he added.

Misty Wyscarver, 55, of Caldwell, Ohio, has put her four children through college, and now carries nearly $194,000 in parent PLUS loans for three of them. Her youngest graduated in May 2020.

“We qualified for very little student aid,” Wyscarver said. “The kids only received Pell grants when two kids were enrolled at the same time.”

Despite the heavy load, she may be one of the more fortunate. As a public servant for more than 30 years, Wyscarver qualifies for the public service loan forgiveness program, which, given her salary of $50,000, reduces her monthly payments to about $250 from $2,000.
After 120 payments, over 10 years, any remaining balance is forgiven. But to remain eligible through the nine years of payments remaining for her youngest child’s education, she needs to continue holding a qualifying job.

“If I were to lose my job, I am done,” said Wyscarver, who works as a software trainer for the State Library of Ohio.

Some higher education researchers say that putting limits on parental borrowing could help, but that it must be done in tandem with providing more grants and other aid to lower- and middle-income students so they are not shut out, or shunted into predatory loans elsewhere. They also say institutions that encourage or even goad parents into borrowing need to be held accountable for loan outcomes.
Currently, “there are no repercussions if the parent can’t pay and defaults in the future,” said Fishman of New America. “It is ‘free money’ for the institution.”

But restricting access to PLUS loans also has consequences. When the Obama administration tightened the credit check criteria in 2011, for example, loan denials increased. And certain institutions whose students rely more heavily on the loans, including historically Black colleges and universities, were particularly hard hit. The backlash was swift — and the rules were loosened a few years later.

The Schweizers were living on a solidly middle-class income when their older daughter started at New York University. They lived in a 900-square-foot house, drove used cars and went on their first vacation 15 years after their honeymoon. William Schweizer, 60, works as an operating engineer for climate control systems in big office buildings and is the main breadwinner.

When the couple took out their federally backed loans, they earned too much to receive aid that doesn’t need to be paid back, Kate Schweizer said. But private college was out of reach without heavy borrowing, so they borrowed.

Their elder daughter graduated with honors at the end of 2008, after 3 1/2 years, for which her parents borrowed about $114,000. They took on $107,000 for their younger daughter, who graduated from Manhattanville College in 2010. Today, their daughters carry additional debts, largely for graduate school, but are enrolled in income-driven repayment plans.

On top of the loans, there were car repairs, dental work and other unexpected costs that would throw the couple’s budget off course. Their credit card balances mounted while their daughters were in college. Eventually, they filed for bankruptcy in March 2010, just before their younger daughter graduated, and their debts were discharged in 2012. They started the foreclosure process the next year, and moved to a rental.

Today, their standard monthly payment would be around $5,000, according to a July letter from their loan servicer. The income-based plan would bring it down to about $2,200, as estimated by a calculator, and it would be paid off when the Schweizers turned 85 and 90. After Kate Schweizer said they couldn’t afford to pay that much, they were permitted to put their loans in forbearance again.

The “scolds” who say they borrowed too much are right, Kate Schweizer said. “But now what do I do?”
 

gliddenralston

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Ultimate parental mistake... don't sell your future for your kids college. College is a complete con now a days.
 

specsaregood

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Ultimate parental mistake... don't sell your future for your kids college. College is a complete con now a days.
And the upper/middle class has figured that out which is why they are eliminating requirements for admissions to colleges. time to get the previously unworthy people stuck with non-dischargeable loans.
 

Buck

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two stupid adults trying to act as parents...and doing it wrong


“Even though the cost of tuition seemed insane, I convinced myself that...

right here, their first step was a mistake, there was little chance the rest of it was going to work out...

and strange as it may seem, i'm willing to blame our education system, a controlled system that literally teaches us NOTHING about our economy or monetary system

yet, they were old and should have known better, they get the blame too...

and we all live amongst millions more, who are willing, with the proper coercion, to leave their cash with you...and sign some IOU's for the rest...

that's part of the reason criminals are everywhere, there are potential victims everywhere
 

the_shootist

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I made the same mistake when trying to do what I hoped was best for my kids to help them with their education and was very fortunate that 2 of my kids all grew up responsible enough to take on their own debt when they were financially capable and refinanced their school loans to remove me a a debtor. I have a couple of small student loans left which I cosigned with my youngest daughter but that's not a huge concern for me at the present time. She makes her regular payments via direct deposit and my life remains unaffected however; the topic of removing me from her college debt still needs to be floated out to her :)
Everything has pretty much gone according to that long term college funding plan from back then until now. Not everyone who's ever put a plan in place can say that so, I consider myself very lucky

One rule I have lived by since the first day I applied for a loan-If you never borrow more than YOU know you can comfortably afford and budget for, you'll be quite able to pay back the debts you decide to incur so the LAST thing you want to do is to let the guy at the other end of the table tell you what you can afford!
 
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Buck

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I made the same mistake when trying to do what I hoped was best for my kids to help them with their education and was very fortunate that 2 of my kids all grew up responsible enough to take on their own debt when they were financially capable and refinanced their school loans to remove me a a debtor. I have a couple of small student loans left which I cosigned with my youngest daughter but that's not a huge concern for me at the present time. She makes her regular payments via direct deposit and my life remains unaffected however; the topic of removing me from her college debt still needs to be floated out to her :)
Everything has pretty much gone according to that long term college funding plan from back then until now. Not everyone who's ever put a plan in place can say that so, I consider myself very lucky
you did it in a manner that worked and no one is suffering because you didn't dot an I or cross a T

and there are thousands of families in that same circumstance, i'm another

being an adult means you have to do the dirty work, not just 'explore your feelings' and hope it all works out...we adults have to make it work out, not just hope it does
 

EO 11110

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retarded that a loan to an honor student engineering major is priced the same as a loan to a crap student majoring in one of the many unemployment degrees
 

specsaregood

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retarded that a loan to an honor student engineering major is priced the same as a loan to a crap student majoring in one of the many unemployment degrees
Thats only because the govt is the one backing the loans. If it was all private businesses/people making the loans you know it would be different.
 

Buck

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retarded that a loan to an honor student engineering major is priced the same as a loan to a crap student majoring in one of the many unemployment degrees
but these are gods we're talking about here:
titles like Professor, and Doctor abound everywhere...learning stuff from those types costs a hell of a lot more than learning to read from Ms. Gerty back there in elementary school

come on man
 

the_shootist

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you did it in a manner that worked and no one is suffering because you didn't dot an I or cross a T

and there are thousands of families in that same circumstance, i'm another

being an adult means you have to do the dirty work, not just 'explore your feelings' and hope it all works out...we adults have to make it work out, not just hope it does
Yep, not having the college experience as a teenager (I only took college courses later in life to round out some core knowledge gaps I felt needed closing) I had to learn everything about the higher education funding process from scratch. The piece of crap scam called FSA/FAFSA they have set up between the government and the banks is nothing short of daunting in its confusion and complexity as well as it being a rape and pillage of the common people by the government, the banks and the universities for their own enrichment.

I would never sent my kid to a big name uni with a big price tag these days. IMHO there's no longer the value associated with graduating from many/most of those schools as there once were. Their administration and staffing are more about focusing their teachings on political indoctrination than fulfilling the role as educators but they still charge the families of their students for that education part they DON'T deliver. That doesn't sound like something I would be too eager to sign up for. You can pretend all you like and get a piece of sheepskin in Gender Studies but when the time comes when you leave school and get out to the world you had best have positioned yourself with a marketable skill set in something which people and companies need and will pay you to provide.

I would recommend to people in this situation today to focus more on smaller colleges which are in turn focused more on topics aligned with more of the students interests. Smaller colleges tend to have more flexible education program options tailored more to the individual than the Big Box indoctrination centers do. I would just be sure also recommend assuring that any of those small candidate colleges you might want to consider isn't one of those flaming liberal communist have hidden in many our rural locations before you sign anything :rotf:
 
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newmisty

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Cant imagine intentionally borrowing money to brainwash my children.
 

Fatrat

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What can't be paid, shouldn't be paid...join the cash economy and fuck them.
 

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The stress of something like that would kill me. I don't do debt well.
 

WillA2

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The Mathematics and Science based degrees are truly what's needed in this country. Forget all the touchy-feely garbage until after reason has had time to set in the student's mindset.
 

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The Mathematics and Science based degrees are truly what's needed in this country. Forget all the touchy-feely garbage until after reason has had time to set in the student's mindset.
Add medical profession degrees, too. Sign on bonuses for even CNA's.
 

gliddenralston

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I made the same mistake when trying to do what I hoped was best for my kids to help them with their education and was very fortunate that 2 of my kids all grew up responsible enough to take on their own debt when they were financially capable and refinanced their school loans to remove me a a debtor. I have a couple of small student loans left which I cosigned with my youngest daughter but that's not a huge concern for me at the present time. She makes her regular payments via direct deposit and my life remains unaffected however; the topic of removing me from her college debt still needs to be floated out to her :)
Everything has pretty much gone according to that long term college funding plan from back then until now. Not everyone who's ever put a plan in place can say that so, I consider myself very lucky

One rule I have lived by since the first day I applied for a loan-If you never borrow more than YOU know you can comfortably afford and budget for, you'll be able to quite able to pay back the debts you decide to incur so the LAST thing you want to do is to let the guy at the other end of the table tell you what you can afford!
Some fine personality traits hidden behind that rough persona.
 

gringott

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I guess some people are just stupid, and I am referencing the parents here.
Hope they work until they die. They deserve everything they get.
 

WillA2

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WillA2

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I guess some people are just stupid, and I am referencing the parents here.
Hope they work until they die. They deserve everything they get.

I understand your point, but I would sacrifice my life/livelihood for my children if needed.
 

edsl48

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I disagree with the headline word "trap" as these parents made a decision and now must live with the consequences of their decisions.
 

Fatrat

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Immigration works both ways, and Belize seems nice.