The U.S. government is sitting on a growing pile of debt backed by little more than parental love.
That’s because parents can borrow tens of thousands of dollars a year for their kids’ college education without showing they can pay it back. About 3 million parents have $71 billion in loans, contributing to more than $1.2 trillion in federal education debt. As of May 2014, half of the balance was in deferment, racking up interest at annual rates as high as 7.9 percent.
“It’s deeply problematic that the federal government is making relatively high-interest loans without thinking about, much less checking, whether the people they’re lending to will be crippled by this debt,” said Toby Merrill, a Harvard Law School lecturer who has counseled defaulted parents through the school’s Project on Predatory Student Lending. “We’re impoverishing the less-privileged population who are aging. That’s a terrible policy.”
Performance Data
The U.S. Education Department, which administers the parent PLUS loan program, doesn’t regularly provide performance data, even though taxpayers will have to foot the bill for any unpaid debt. The last time the agency released default rates for parent loans, in 2014 for the group that deferred payment until their kids left school and began repaying in 2010, the rate was 5.1 percent, up from 1.8 percent four years earlier. It has projected that loans originated in 2014 will default over their lifetime at a rate of 10.2 percent.
In August and October, the department denied Freedom of Information Act requests by Bloomberg News seeking parent default and deferment numbers by college, saying it “has yet to complete its analysis” by institution. The agency provides default data annually, broken out by school, for most student borrowers. Those rates help determine which schools can continue to access the loan program.
“We can’t fix problems in the student-loan programs if researchers, policy makers and consumers don’t have access to the information they need,” Senator Elizabeth Warren, a Massachusetts Democrat, said in an e-mailed response to questions.
Senator Lamar Alexander, the Tennessee Republican who chairs the Senate Health, Education, Labor and Pensions Committee, plans to look at ways to improve the disclosure of loan information in forthcoming legislation, according to a spokeswoman.
Denise Horn, an Education Department spokeswoman, said the government is committed to keeping college accessible and affordable, while helping families make informed choices about borrowing, including parent loans.
“As part of those efforts, the department offers loan counseling to all PLUS loan applicants to empower parents with additional details on their loans,” Horn said in an e-mail. “We believe this is an important component to ensuring borrowers are aware of and understand their repayment obligations.”
‘So Easy’
Maria Correa, a 63-year-old secretary and breast-cancer survivor, is one of those parents being crushed by debt. Correa, who moved to Chicago from Manila in 1982, began borrowing from the government in 2009 to help send her daughter to DePaul University, a private college in Chicago. She took out $120,000 in parent PLUS loans over four years, in addition to the $27,000 her daughter borrowed from the government.
Parent Trap Involves $71 Billion Of Federal Education Debt
December 18, 2015
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Comments
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As Jack W pointed out, the root question is how the cost of a college education increased so much faster than the cost of everything else (except, of course, medical care). I think the answer is: Because they could get away with it. Business negotiators are taught to "not leave money on the table." It's easy to talk people into borrowing easy money for "the best investment you can make." Remember the run-up to the housing crash? The same patter was used then. The concept of maximizing revenues has taken over at "non-profit" organizations in this country--thanks in large part to the fact that they are now run by the MBA's who where trained in the ways, and the ethos, of corporate America. Neither medicine, nor education, nor the country as a whole has benefitted from this--only the highly-paid members of the "administrative class."
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This is another example of why a 529 plan funded over decades will help with the cost burden. In addition, children should be paying off the debt as they are benefitting from the education not the parents, it teaches kids fiscal responsibility. However, it is also hard to understand how the cost of a college education has gone up geometrically more than inflation when you see kids who are more skilled at video games and texting than in math and science. Bottom line, a degree only gets you a place at the starting line, it doesn't guarantee you will win or finish the race especially if you get a degree in something esoteric instead of practical.
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I sympathize with the plight of the family in the article, but am often perplexed that people can borrow money, from a government or private program, when they can't repay the loan. Isn't that what drove us into the Great Recession? I usually tell parents who defer retirement savings to pay for college, that one can borrow money for almost anything except retirement. Only you will be responsible. The struggling mother can't see retirement because of a choice. Now the daughter is a college graduate from a top university. Why isn't she paying off the loans her parents took out? Maybe she should have borrowed the money vs. mom.