Parents like Correa can borrow the entire cost of a child’s college education -- in some cases more than $50,000 a year -- without having to provide income data. The government requires only that they don’t have “adverse credit” for two years, a duration reduced from five years by the Education Department last year. Applicants can have loan balances of $2,100 that are delinquent 90 days or more, are in collection or charged off and still qualify for a PLUS loan.
“It was so easy to get the loan,” Correa said over lunch at a Macy’s store in downtown Chicago, near the office where she has worked for the past 27 years. “I tried my best to help out with my daughter’s needs.”
Paralyzing Stroke
Correa’s family budget “spiraled down,” she said, after her husband, Marc, now 68, suffered a stroke in 2010 that left him paralyzed on his right side and permanently disabled. He previously was employed by a restaurant group at Chicago’s O’Hare Airport repairing equipment. Now his Social Security checks mostly go to pay for medication, Correa said.
Correa deferred repayment while her daughter was in college, as a law passed by Congress in 2008 allowed her to do. Now she’s in the second year of a maximum three-year hardship deferment. Meanwhile interest has been accruing on her 7.9 percent loans, swelling her debt to almost $170,000.
“Every day it’s on my mind,” said Correa, who lost her house in 2012 because she couldn’t afford the monthly mortgage payments of more than $2,000. “How am I going to pay it?”
Hardship Deferral
Correa, who moved with her husband to their daughter’s home in Bolingbrook, a Chicago suburb, said she plans to use the third year of her hardship deferral and then enter a 25-year repayment plan that will lower her monthly bill to about $1,500 based on her current balance, instead of $2,000. If she makes every payment, she would be at least 90 when the debt is paid off.
“I don’t know if I will default,” said Correa. “I don’t know when I’ll retire.”
Correa’s daughter, who requested that her first name not be used, majored in journalism and public relations at DePaul, graduating in 2013. She works for a nonprofit organization in Chicago and said she pays about $400 a month on her loan.
DePaul, the largest Catholic university in the U.S., cautions parents and students to borrow only what is prudent, Jon Boeckenstedt, associate vice president of enrollment and marketing, said in an e-mail.
“We cannot control how much a parent borrows on a PLUS loan for an undergraduate,” he said.
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.